Hong Kong bourse ‘needs to create conditions’ to attract listings from technology firms

The rules of the main board of Hong Kong’s stock exchange should be reviewed so that Chinese technology companies with dual-class share structures could list, boosting the city’s attractiveness as a destination for firms to go public.

That was the view of panellists on Tuesday at the “Redefining Hong Kong Debate Series” organised by the South China Morning Post.

They noted that the decision by Alibaba Group Holding to list on the New York Stock Exchange in 2014, after Hong Kong regulators refused to accommodate its unique governance structure, had proved detrimental to the Hong Kong exchange’s attractiveness to technology companies.

“Hong Kong needs sufficient investor disclosure and additional listing requirements for these companies, with special clauses built in to protect public investors subscribing to the shares of a company with a dual-class share structure,” said Albert Ng, managing partner of EY Greater China.

Dual-class share structures, which run contrary to Hong Kong’s existing “one share, one vote” standard, are popular among technology companies as they enable founders and management to maintain control over the strategic direction of the company after a listing.

Ng also suggested that other measures could include time limits on special voting rights given to controlling shareholders or founders.

The panellists noted that a review of the rules on the main board should go ahead regardless of whether the exchange adopted proposals for a third board specifically targeting technology companies.

The bourse operator, Hong Kong Exchanges and Clearing (HKEX), is consulting on a third board, proposals for which include allowing dual-class share structures.

Ng also said that HKEX should remove limitations that ban companies in China from seeking a secondary listing in Hong Kong.

The panellists said Hong Kong was missing out on significant trading volumes that Chinese tech companies could potentially bring through a secondary listing in the city, noting that Alibaba has daily average trading volumes on the New York exchange of US$2.1 billion. Alibaba owns the South China Morning Post.

Separately, David Lau, JPMorgan’s head of global investment banking in Hong Kong, said many new economy companies, such as biotechnology companies, have decided to list in the US because of a lack of an ecosystem in Hong Kong.

That lack was caused by a general shortage of institutional investors or analysts who understood such companies.

“When there are more peer companies that are already listed on an exchange, it also facilitates peer comparison – which would in turn also help the valuations process for these new share offerings,” he said.

Though Hong Kong is home to some of the largest share offerings in the world in terms of funds raised, it ranked only 12th worldwide for technology listings in the first eight months of this year, below markets such as the US, Singapore and South Korea, according to Thomson Reuters data.