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Charles Li Xiaojia

HKEx chief Charles Li Xiaojia urges reform as Alibaba opts for New York

Hong Kong stock exchange chief not prepared to bend rules for HK$100 billion listing of tech giant but says structural reform is under way


Stock exchange chief Charles Li Xiaojia says the city must be ready to reform its share-listing rules if it wants to stay a globally competitive financial centre, but it was right to stick to principles that saw it lose out yesterday to New York for the potential HK$100 billion listing of Alibaba.

Li spoke to the South China Morning Post hours after mainland e-commerce giant Alibaba said it had picked New York after months of wrangling with Hong Kong regulators over its management structure that the Securities and Futures Commission said breached its "one shareholder, one vote" governance rules.

"Everything has a cost. Our persistence has a cost too," Li told the Post, but added that Hong Kong Exchanges and Clearing would continue with the review of its existing listing rules - which began after a stalemate with Alibaba last autumn - even though the deal was now dead.

We would not bend our existing rules just for one applicant
Charles Li Xiaojia

"The reform review in the HKEx will not stop because Alibaba has decided to list elsewhere," Li said. "We would not bend our existing rules just for one applicant, but Alibaba's proposal has propelled the management to review our operating model. The eventual loss may be even larger if we don't undergo reforms [of the] listing regime."

However, the stock exchange chief was careful to back regulation that many international investors - and the SFC - say define Hong Kong as a respected market in which to trade and invest.

"We feel proud of Hong Kong as we ensure that our rule of law and investor protection remain intact," Li said.

Hangzhou -based Alibaba, led by former English teacher Jack Ma Yun, said yesterday that it would begin the process for an initial public offering in New York.

Hong Kong's regulators had rejected Alibaba's wish for an amendment to the city's listing rules to accommodate a partnership structure that gives Ma and other senior managers the right to nominate a majority of board members, despite owning only around 10 per cent of the firm's stock. Exchanges in the US allow such dual-class structures. The other major stock holders in Alibaba are Yahoo and Softbank.

Alibaba is expected to raise US$15 billion in New York in the highest-profile listing since Facebook's US$16 billion IPO in 2012.

The estimate is based on the firm's current expected market value of between US$100 billion and US$120 billion.

Alibaba said on its corporate blog yesterday that the steps towards a US IPO would make the firm "more global and enhance the company's transparency, as well as allow the company to continue to pursue our long-term vision and ideals".

Investment banks, including Credit Suisse and Morgan Stanley, are said by market participants to be the lead managers for the Alibaba listing.

The US listing will provide a swift means for Alibaba to lower the cost of capital since the deal-hungry internet firm has spent more than US$3 billion in a buying spree over the past year.

This article appeared in the South China Morning Post print edition as: HKEx aims to change as Alibaba picks N.Y.