HKEX mulls over plan for dual-class shares again

Both HKEX and SGX have lost out on big-name IPOs previously as they could not bend rules on share structure. HKEX lost the IPO of Alibaba (above) to the New York Stock Exchange in 2014 while SGX lost a possible Manchester United IPO in 2012, also to
Both HKEX and SGX have lost out on big-name IPOs previously as they could not bend rules on share structure. HKEX lost the IPO of Alibaba (above) to the New York Stock Exchange in 2014 while SGX lost a possible Manchester United IPO in 2012, also to New York.PHOTO: REUTERS

HK's revival of dual-class debate comes as Singapore studies allowing such shares

While Singapore is weighing up allowing the issue of dual-class shares, Hong Kong is proposing to launch such a listing venue.

The Hong Kong Exchanges and Clearing (HKEX) said yesterday that it is exploring the idea of a new board where company founders could be allowed to maintain control through superior voting rights.

"We are also in discussion with our regulators and plan to consult the market in due course," said HKEX chief executive Charles Li in a statement.

Nothing is certain yet. A previous push to allow dual-class shares on the mainboard in 2014 was quashed by the Hong Kong Securities and Futures Commission, which raised concerns over fairness and transparency.

Still, Hong Kong's revival of the dual-class debate is "an interesting development, at an interesting time", said Singapore Exchange (SGX) chief executive Loh Boon Chye.

Mr Loh did not directly address the question of competition during an SGX results briefing yesterday, but said: "We have broadcast our intention to offer various capital structures, dual-class included.

"We've given quite a bit of time for the topic to be discussed in the marketplace, and we will now follow up with a public consultation (this quarter)."

Both HKEX and SGX have lost out on big-name initial public offerings (IPOs) in the past because they could not bend rules on share structure. SGX lost a possible Manchester United IPO to the New York Stock Exchange in 2012 while HKEX lost Alibaba's IPO in 2014, also to New York.

Many institutional investors, as well as corporate governance proponents like Associate Professor Mak Yuen Teen, hope that Hong Kong will not throw its doors open to dual-class listings.

"This is the race to the bottom that many investors fear. If Hong Kong does it, there may be even more pressure from some quarters for SGX to do it for fear of losing out to Hong Kong," said Prof Mak.

Duane Morris & Selvam managing director Leon Yee also questioned if allowing dual-class shares would be a certain boon to Singapore's stock market.

"SGX's loss of competitiveness is the result of other more fundamental problems, most notably small market size," he said. "Investors do not want to be promised blue-chip dual-class shares only to be burnt by those who are only using such structures to entrench and enrich themselves."

To be sure, the dual-class share structure is not a new concept in Singapore. Management shares of Singapore Press Holdings, for example, come with special voting rights.

Gibson Dunn partner Robson Lee said: "I believe the proposed dual- class share structure that SGX is still deliberating will not be open to all issuers, but only to issuers that have a compelling reason for such a structure to be in place before listing."

A version of this article appeared in the print edition of The Straits Times on January 20, 2017, with the headline 'HKEX mulls over plan for dual-class shares again'. Print Edition | Subscribe