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Tuesday, November 8, 2016, 21:26

Dual-class share plan — SFC offers olive branch

By Luo Weiteng
Dual-class share plan — SFC offers olive branch
A billboard featuring the Tmall Cat — the mascot of Alibaba Group Holding Ltd’s online marketplace Tmall — reflects the tech giant’s growing presence in Hong Kong. Alibaba Chairman Jack Ma Yun warned that its online payment unit Ant Financial may go public anywhere else if Hong Kong remains reluctant to reform its listing rules to fit well with internet firms. (Anthony Kwan / Bloomberg)

Amid a chorus of criticisms from the business elite, including prominent Chinese mainland magnate Jack Ma Yun, of Hong Kong dragging its feet over the introduction of a dual-class stock structure, the city’s securities watchdog has softened its stance on the controversial issue.

Latest remarks by Ashley Alder, chief executive of the Securities and Futures Commission (SFC), point to the regulator’s resolve to seek a more active role in supervising Hong Kong’s capital market and sharpen the city’s edge as a magnet for high-quality companies from across the globe.

HK securities regulatory body rules out total ban on listing companies with such structure on local bourse

Ashley brought the issue back into the fold in an address to the annual Pan-Asian Regulatory Summit in Hong Kong on Tuesday, saying the SFC does not intend to either slap a total ban on companies with such a dual-class share structure from listing in the SAR, or rule out the possibility of reviving discussions in future.

The high-profile discussions more than a year ago on a dual-share regime for Hong Kong in contravention of the city’s “one share, one vote” listing rule ended up being tossed out by the SFC, forcing Ma’s mainland tech behemoth Alibaba Group Holdings Ltd to ditch Hong Kong in favor of New York for its mega US$25-billion initial public offering (IPO) in 2014.

Alder’s comments came after Ma warned last week that its online payment unit Ant Financial may go public anywhere else if Hong Kong remains reluctant to reform its listing rules to fit well with internet firms.

“We’ll list in Hong Kong only if we think the city is ready,” Ma said.

The SAR’s existing listing regime, which came into being more than a decade ago and well before the internet era, may cater only to the pillar industries like real estate and banking, but fail to suit startups and “new economy” companies, he noted.

Overhauling the local listing regime has always been on the SFC’s agenda. Local market players have witnessed the wrangling between the watchdog and the city’s bourse operator — Hong Kong Exchanges and Clearing Ltd — reflecting the daunting task of striking a delicate balance between market dynamics and regulatory concerns.

A dual-share stock structure, which allows owners of fast-growing enterprises without controlling stakes to raise capital without having to relinquish control, is designed to make Hong Kong a more favorable listing destination for technology firms. But, critics have branded it as unfair as it offers a company’s founders and executives more voting power with a relatively small equity, while other public shareholders have limited voting rights.

Alibaba Vice-Chairman Joseph Tsai told the Hong Kong General Chamber of Commerce’s annual Business Summit in Hong Kong last week that the city should embrace innovation.

“I think there’s something to be said to move from a highly prescriptive regime to a disclosure regime, so that it let the investor decide what’s appropriate and what’s not appropriate. Let the investor determine what works with corporate governance and what doesn’t,” said Tsai.

Hong Kong’s “one share, one vote” principle, however, won’t necessarily get in the way of Ant Financial’s planned IPO, which is projected to raise at least 10 billion yuan (US$1.5 billion).

The company is valued roughly at US$75 billion as it’s not incorporated under a dual-class stock structure.
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