Hong Kong regulators caught between rock and hard place in Alibaba IPO saga
Regulators now face challenge on how to handle new structures while upholding governance
Controversy surrounding Alibaba's potential HK$100 billion listing plan is only likely to intensify in Hong Kong in the wake of the firm's announcement yesterday that it is starting the process for a share sale in New York.
Finding a scapegoat to blame for the loss of the most eagerly awaited technology listing since Facebook's US$16 billion initial public offering last year will doubtlessly become something of a spectator sport.
But what could Hong Kong Exchanges and Clearing or the Securities and Futures Commission have done differently and does the loss of the deal now argue definitively for a change to the city's governance principles?
This is not a persuasive argument and leads to a slippery slope of future exemptions
The key sticking point in the months-long saga was the SFC's rejection of Alibaba's demand that its partners be able to nominate a majority of the company's board.
A key governance principle of Hong Kong's listing rules is a restriction on dual-class share structures or other schemes that allow controlling shareholders or managers to possess disproportionate voting power.
Alibaba wanted an exemption for its structure, which it said was inherent to the uniqueness of the business it had developed. As the rule book has a provision for exemptions, it could have been granted. But that reasoning might simply not have been specific enough to allow it.
"The stock exchange's listing committee cannot make a principled differentiation for exemption based on industry sector. This is not a persuasive argument and leads to a slippery slope of future exemptions," David Neuville, a partner at Cadwalader, Wickersham & Taft, told the South China Morning Post.