NewHong Kong exchange mulls dual share structures with safeguards

Hong Kong Exchanges and Clearing (HKEx) is preparing to launch a second stage of consultation on weighted voting rights, in the third quarter of this year at the earliest, with an emphasis on higher governance standards for a small group of sizable listings.

The demand for a more stringent regulatory regime for companies wanting to use dual-share structures was bolstered by opposition to the proposal from a number of large international managers including Fidelity, BlackRock and Aberdeen Asset Management Asia, who warned their introduction could diminish minority shareholders' voting rights.

"We are considering proposing that, generally, 'one share-one vote' should prevail but that weighted voting rights structures should be allowed for certain companies in certain circumstances and with certain safeguards," David Graham, HKEx's chief regulatory officer and head of listing, said on Friday.  "It is not our intention that such structures become commonplace in Hong Kong."

He said he expected such structures would only be allowed for large, fast-growing, companies, and that one investor-protection proposal was to make compliance advisers permanent, rather than staying for a year when listing on the main board.

Ben Kwong, a director of brokerage KGI, said the investing public should be aware of the potential risks associated with companies that adopted a standard other than the "one share-one vote" principle since Hong Kong, unlike the US, did not allow class-action lawsuits.

Chinese e-commerce giant Alibaba dumped Hong Kong and opted for a New York listing last year, raising a record-breaking US$25 billion. The decision to list in the US was primarily due to Hong Kong's refusal to allow the company's request for dual-class shares and a partnership structure that would have allowed management to nominate a majority of board members.