Thursday, October 17, 2019
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Hong Kong stock exchange eyes reforms to catch IPOs

Hong Kong: The head of the Hong Kong stock exchange has called for a market consultation on alternative shareholder rights after the city missed out on the $60 billion-plus listing of Alibaba because of concerns about its corporate governance that arose from management demands to nominate a majority of board directors.

Charles Li, chief executive of Hong Kong Exchanges, said the public interest involved promoting the long-term competitiveness of Kong Kong as an international financial centre as well as protecting investors and the rule of law.

“Losing one or two listing candidates is not a big deal for Hong Kong; but losing a generation of companies from China’s new economy is. And losing it without a proper debate is even more unacceptable,” he wrote in his blog.

However, he added that special considerations should only be granted to limited and well defined types of company and that there should be safeguards such as a minimum public float, market size or ownership by the founders.

The call came as Alibaba’s chief executive, Jonathan Lu, told Hong Kong’s South China Morning Post newspaper that the company would not pursue a listing anywhere in the near term, suggesting Hong Kong may yet have time to change its rules and capture the Chinese ecommerce group.

Alibaba abandoned its plan to pursue a multibillion-dollar initial public offering in Hong Kong last month after listing authorities balked at its demands that a group of senior management be allowed to nominate a majority of directors on its board. The unusual structure was created as a way to protect the long-term strategic interests of the group’s management in a market that does not allow dual class shares with different voting rights, which have been used by US technology companies such as Google.

Alibaba was then pursuing a in the US, where Nasdaq and the NYSE have both confirmed they would accept its unusual management structure, according to the company, although it has also flirted with the London Stock Exchange.

However, Alibaba will have to do more than wait for a rule change to get its listing approved in Hong Kong. Li in his blog laid out a series of potential board nomination structures that were close to, but more restrictive than, what Alibaba had asked for.

Alternatives such as these were offered to Alibaba during its negotiations with Hong Kong, according to people with knowledge of the matter, but the Chinese group refused to budge on its demands.

Many people involved in the market want a consultation on alternative shareholder rights, which one senior participant says could be launched early next year. However, the Securities and Futures Commission has the final say on any rule changes and is expected to be difficult to convince without tightly defined criteria on how alternative rights would apply, and to whom.

The Hong Kong exchange and the Listing Committee, which vets potential candidates and creates the listing rules, have been considering a consultation since before Alibaba made its proposal, according to people familiar with the situation.

Hong Kong has already turned away Manchester United, which wanted a dual class share structure and eventually listed in the US, while other Chinese tech companies such as US-listed Baidu remain keen on adding a Hong Kong listing, but cannot because it has dual-class shares.

“In a less institutionalised and less litigious market [than the US] such as Hong Kong, such concessions, if given, would need to be moderate and come with checks and balances for use in the event of abuse or true conflict,” Li wrote.

“This is not about one listing candidate or fees earned from a listing here or there, it is about choosing a future path and all the responsibility that entails. We need to have broad perspectives and base our decisions on sound judgment. And we need a debate that focuses on the merits of the arguments.”