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Tuesday, December 19, 2017, 19:26
Dual-class shares a possible boon for HK IPO market
By Luo Weiteng
Tuesday, December 19, 2017, 19:26 By Luo Weiteng

A flag of the Hong Kong Stock Exchange (center) is seen at the Exchange Square. (ANTHONY WALLACE / AFP)

The initial public offering (IPO) market in Hong Kong, which is poised to have New York stolen its crown as the world’s leading venue for flotation this year, looks to gain momentum from the newly-announced revamp of listing rules. But such a momentum should not be as great as people may expect, said global accounting firm Deloitte.

The dual-class shares is just the building block of an ecosystem that will eventually reshape Hong Kong as an attractive IPO market for new economy companies

Dick Kay, Shanghai-based co-leader of national public offering group at Deloitte

Hong Kong Exchanges and Clearing, the city’s exchange operator, said on Friday it had begun drafting specific rule changes that paves way for the controversial dual-class shares, after the city’s Securities & Futures Commission eventually backed away from its long-lasting position on the “one share, one vote” principle.

Such shares, also known as weighted voting rights and permitted by many bourses around the world including in the United States, Canada, France and Switzerland, typically give one set of shareholders greater voting rights than others and are favored by the so-called new economy companies as a way of letting founders and top executives stay in control.

ALSO READ: New York steals Hong Kong's IPO crown

After two consecutive years in the top spot, Hong Kong is on track to lose its much-coveted title as the global top venue of choice for companies undertaking IPOs in 2017, due to the absence of blockbuster listings, Edward Au, Hong Kong-based co-leader of the national public offering group at Deloitte.

But new economy companies this year came as a major boost to the Asia’s third-largest exchange by market capitalization, which has long been dominated by firms in traditional financial services and real estate sectors-the twin pillars of Hong Kong’s economy, Au said.

“The adoption of dual-class shares fits in well with the city-wide burgeoning appetite for new economy companies,” said Au. “At a conservative estimate, a constellation of promising firms, including a handful of the so-called unicorns, will kick off an IPO spree in Hong Kong in the final quarter of 2018.”

Worldwide investors today bet big on a total of 200 unicorns-startups valued at more than $1 billion- making their IPO market debuts someday. Chinese mainland is home to a new wave of 100 fast-growing companies, most of whom have long approached the stage where they might go public, including household names like Tencent Music, Ant Financial, Xiaomi, Didi Chuxing and Meituan Dianping, Au noted.

The much-awaited dual-class shares sharpens Hong Kong's edge as a magnet for the likes of tech giants, most of whom may put listings on agenda within next year and put the financial hub on course to secure a place among the top three in the global IPO league table, he reckoned.

"But such a momentum may only be short-lived. For new economy unicorns, dual-class shares structure is one of the major factors taken into account when selecting the listing destination. A more important consideration is whether there is an ecosystem put in place to let new economy companies thrive and prosper," he noted.

Despite years of efforts to diversify local economy away from the traditional twin pillars, and polish its brand as an emerging innovation and technology hub, Hong Kong still has a long way to go. 

"The introduction of dual-class shares may mark the very first step, but how to educate investors about the potential risks, and allay the concerns that such structures will not erode market integrity will take extra years of hard work," said Dick Kay, Shanghai-based co-leader of national public offering group at Deloitte. "The dual-class shares is just the building block of an ecosystem that will eventually reshape Hong Kong as an attractive IPO market for new economy companies." 

sophia@chinadailyhk.com

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