(Adds comments from HKEx and analysts, figures on U.S.
By Elzio Barreto
HONG KONG Aug 29 Stung by the loss of the
high-profile IPO of Chinese e-commerce firm Alibaba Group, the
Hong Kong stock exchange on Friday took a first step towards
potentially loosening its listing rules and allowing firms with
dual-class share structures to list in the city.
Hong Kong Exchanges and Clearing Ltd (HKEx), which
operates the city's stock exchange, unveiled a "concept paper"
on new shareholding structures after in-depth consultations
between finance industry executives, officials at the exchange
and the city's securities regulator.
The discussions over the potential changes come as Hong Kong
looks to remain competitive as a listing venue, particularly for
Chinese technology companies that have flocked for IPOs to New
York where dual-class share structures that give different
voting rights to varied owners are allowed.
The exchange said it will seek comments from market
participants through Nov. 30 on allowing weighted voting rights
for companies in the city. Potential changes to listing rules
would be put for public consultation only later, if the move
finds favour among market participants, it said.
Michael Cheng, research director, China and Hong Kong Asian
Corporate Governance Association, described the concept paper as
an "interesting animal" that allows the exchange to reignite the
debate over weighted voting rights without taking any formal
"This is a de facto consultation when it claims not to be.
They know this is a very controversial topic and the global
investment community will be very interested in what is put
forward with respect to investor protection," Cheng said.
"This paper reflects the tension and conflict of interest
that the HKEx is in: it's eager to commence dialogue on the
matter while claiming not to be starting it. It wants to have
its cake, and eat it too."
Because of the controversial nature of any potential
changes, the HKEx is looking to garner as much feedback and
support as possible from market participants to be able to
convince the Securities and Futures Commission (SFC) that
changes might be necessary.
"This is as much as the exchange could get away with. If it
had proposed changes, the SFC would have opposed them,"
corporate governance activist David Webb said.
While Hong Kong has been looking at ways to maintain its
standing as a prime financial centre for some years now, the
effort gained urgency after Alibaba picked New York for its
initial public offering (IPO), possibly the largest ever by a
Alibaba's move came after Hong Kong officials rejected its
request to allow a small group of company insiders to nominate
the majority of its board. The request went against Hong Kong's
"one share, one vote" principle, which has been staunchly
defended by the SFC.
HKEx on Friday said its discussion paper or potential
changes to listing rules aren't related to Alibaba's move to
seek a U.S. listing.
"The decision to put this paper is not related to an
individual company," David Graham, chief regulatory officer and
head of listing at HKEx, said at a news conference.
The exchange said in its paper there were 102 companies from
mainland China that had primary listings in the United States as
of the end of May. Of those companies, about one-third used
weighted voting rights, but they accounted for 70 percent of the
market capitalization of all U.S. listed Chinese companies.
The vast majority of companies using those structures were
in the technology sector, like Alibaba. Nine of the 12 companies
from mainland China that listed in U.S. exchanges in 2014 used a
weighted voting rights structure, the HKEx said.
(Additional reporting by Michelle Price; Editing by Muralikumar