Hong Kong Needs Debate on Share-Class Rules, Exchange’s Li SaysFion Li
Hong Kong needs a debate on how to handle “innovative companies,” including whether to allow them to have multiple share classes, said Charles Li, head of the city’s stock exchange, after initial-offering talks with Alibaba Group Holding Ltd. broke down last month.
Jack Ma, the billionaire founder of China’s largest e-commerce company, and his partners wanted to retain control after a Hong Kong listing through a partnership that would nominate a majority of board members. Hong Kong rules don’t permit such a structure. Alibaba Executive Vice Chairman Joseph Tsai said last month that the exchange operator should “adapt to future trends and changes.”
“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,” Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd., wrote in a blog post on the exchange’s website yesterday, saying the comments reflect his personal views, not those of the HKEx board. “Losing it without a proper debate is even more unacceptable.”
Innovative companies are distinct because their success comes largely from their founders’ vision, Li said. Founders also have legitimate concerns they may be removed from their boards as their holdings are diluted by rounds of financing, Li added. Most international markets are willing to allow shares with differentiated voting rights, he said.
The key is to find a balance between concessions to founders and protection for public shareholders, Li wrote. There’s a range of options between keeping the status quo and allowing dual-class shares, he wrote.
If changes are warranted, the city may consider requirements for mandatory public floats and for the founder or founding team to maintain minimum shareholdings, Li said.
“If the market decides to keep the status quo, I hope that it would be a proactive decision we reaffirm after thoughtfully debating the issues and concluding that it is the best course of action,” Li said. “We should not become victims of inaction out of fear or inertia.”