Hong Kong’s long awaited Alibaba Group initial public offering got killed this week. The culprit – Mr. Tradition, on the trading floor, with a stick-in-the-mud.
Charles Li, chief executive of Hong Kong Exchanges & Clearing Ltd., known for his colorful speeches that have likened the bourse to a fetus, a racehorse, a highway and beloved child, took to his blog on Sept. 25, and put all of his past prose to shame.
In the soliloquy, set in a dream sequence and laced with no less than ten different “voices,” Li laid out arguments for and against allowing structures that would let majority shareholders control newly-listed companies.
Mr. Tradition opens the discourse, advocating the status quo, followed by Mr. Innovation, “a young man with spikey hair.”
“Give us a break Mr. T!,” Mr. Innovation cries. “What’s wrong with different share structures? Many other exchanges in the world permit them, it’s just you Hong Kong stick-in-the-muds who can’t accept change.”
The 2,092-word entry proffers opinions from Mr. Disclosure, Mr. Big Investor, Mrs. Small Investor, Mrs. Practical, Mr. Righteous (don’t get him started), Ms. Future and Mr. Process. They all await the Godot-like Mr. Solution who fails to materialize before Li wakes up to the reality that Alibaba-founder, Jack Ma, is already looking westward to a New York listing.
“We understand Hong Kong may not want to change its tradition for one company, but we firmly believe that Hong Kong must consider what is needed in order to adapt to future trends and changes,” Alibaba’s Executive Vice Chairman Joseph Tsai wrote in his own blog post the next day. “The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by.”
Mr. Disclosure, one of Li’s more rational figures, attempts to explain that the U.S.’s more stringent disclosure requirements and class-action litigation system make dual-class regimes more palatable.
“Hong Kong must get comfortable that there will be enough checks and balances to keep the founders motivated, but at the same time, honest and prudent should Hong Kong consider similar changes,” Li-as-Disclosure writes. “If you ask me, a more gradual approach is better than a wholesale adoption of the U.S. system.”
Alibaba could have raised about HK$100 billion ($12.9 billion) in an initial sale, Ernst & Young said earlier this year. That would have made it Hong Kong’s largest IPO since AIA Group’s $20 billion sale in October 2010. And it would have been even bigger than all other IPOs completed this year combined, according to data compiled by Bloomberg.
Google and Facebook, both listed on the Nasdaq, have two classes of stock which enable their founders to run the companies the way they want to, free from the demands of shareholders. As Mr. Innovation points out, “people invest in these companies based on the founder's vision, track record and reputation.''
But this argument has its detractors. David Webb, a former exchange director who founded local governance watchdog Webb-site.com, is critical over giving special rights to a special class of shareholder.
“Webb-site had a dream last night, in which HK investors signed a declaration calling for a new regulator to remove HKEx's conflict of interest between profit and regulation, inspired by the events of 1776,'' he wrote on Sept. 26. “We hold these truths to be self-evident, that all shareholders are created equal, that they are endowed by their Articles of Association with certain unalienable Rights, that among these are limited liability and 1 vote per share...''
So who’s more important, the shareholder or the guys who started the company? The debate rages on …