Hong Kong regulator opposes proposal to allow dual-class shares

[HONG KONG] Hong Kong's securities regulator opposes a plan by the city's bourse to allow dual-class listings.

The Securities and Futures Commission said its board "unanimously concluded that it does not support the draft proposal" by Hong Kong Exchanges & Clearing Ltd. Under HKEx's plans, there is "no assurance that a company would treat its shareholders fairly," the SFC said in an e-mailed statement.

HKEx announced plans last week to move toward loosening shareholder voting rights that spurred Alibaba Group Holding Ltd to pick the US over Hong Kong for its initial public offering. Opponents to allowing minority-control voting structures include Blackrock Inc, Aberdeen Asset Management Plc, State Street Corp and Li Ka-shing, the city's richest man.

"This effectively kills the proposal," said David Webb, a shareholder activist in the city and founder of Webb-site.com.

The exchange operator said June 19 it planned a formal consultation on weighted voting rights as early as the third quarter after initial feedback from market participants supported allowing dual-class votes.

HKEx will engage with the SFC and the regulator's statement will be "material" to its consultation, the bourse operator said in an e-mailed statement. Any rule amendments require approval by the SFC board of directors, HKEx said.

Hong Kong's regulators rejected the governance structure of Alibaba last year, prompting the Chinese e-commerce company to turn to the US for an IPO that raised about US$25 billion.

The lack of a class-action legal system has made the SFC reluctant to amend the rules because less redress is available to small shareholders. In the US, companies with more than one type of share, including Google Inc and Facebook Inc, are subject to more stringent reporting requirements and shareholders have the ability to band together on lawsuits.

BLOOMBERG