HKEx poised to take plunge into dual-class shares

Singapore

HONG Kong Exchanges and Clearing (HKEx) looks poised to accept the listing of companies with dual-class shares, but instead of the initial plans to launch separate boards, the two new boards will likely reside within its main board.

HKEx's chief executive officer, Charles Li, who is in Singapore to announce the opening of the exchange's first overseas office, said on Wednesday: "We probably will end up with two new chapters inside the main board."

One of the chapters will be for nascent companies with no track record of revenues; these include "new economy" companies such as those in research and development, biotech or life-science sectors. The other chapter will be for those which come without voting rights. "They will be within the main board so that it's easy to execute," Mr Li said, adding that retail investors can then participate without differentiating and discrimination.

He indicated that all the other procedures, investor protections and obligations of the main board will continue to apply.

"The new chapters will have additional features and additional investor protection measures to balance against the exceptions we are making on pre-revenue or governance structures."

On the strong opposition to the waiver of voting rights, he said: "We can debate the merits and risks all day long, but at the end of the day, this is really about providing choices for the market and making sure these choices have protections and measures against abuse. We are not passing judgements as to what is good or bad.

"Also when a company becomes a problem, or when investors get hurt, it is not always about shareholder structures. There are many things which can go wrong with the company."

He argued that governance structure provides certain probability of success.

"But we have to allow the market to make those choices. This factor should not be the driver for our decision. We are simply creating those choices so that people can make decisions on listing venues on a variety of potentially more important factors rather than purely on governance structure."

HKEx is close to announcing the conclusion for its last consultation to accommodate a dual-class share structure. It is hoping to take applications under the new rules in the second half of next year.

Mr Li's comments in Singapore come a day after Paul Chan, Hong Kong's financial secretary, said that accepting companies with dual-class stock - which give certain shareholders greater rights disproportionate to their shareholdings - appears to be an irresistible move, and Hong Kong must change the way it does things to maintain competitiveness.

Over the years, the HKEx has been trying to fundamentally transform its market and open up new frontiers, using three key strategies.

"We want to make our IPO market more relevant; we want to make our equity market even more connected, and we want to make our derivatives markets more competitive."

Mr Li said it was crucial for the exchange to cater to "new economies, innovation and the new generation of technologies, businesses and tranformative ways of doing things and life".

He added that HKEx will also create regimes to allow much easier access to secondary listings so that companies listed in the US or UK, for example, are able to come back to seek a listing in Hong Kong. "This includes both companies from the Greater China area as well as international companies."

To make its market more connected, HKEx has launched Shanghai Connect, Shenzhen Connect and Bond Connect.

"These connects are extremely innovative and unique way of market access, which allows electronic trading to cross borders without limitations, while allowing clearing and settlement to occur in the origination market, so that the actual cross-market settlement of shares or cash is kept to the minimum.

"The model allows massive leverage, opening of the market without creating undue flows of capital back and forth," he said.

HKEx hopes the Singapore office will serve its clients in Singapore and the rest of South-east Asia and reach out to potential clients in the region.