HK exchange chief debates change in a bid to attract IPOs

Head of HK stock exchange calls for market consultation on alternative shareholder rights

Charles Li, chief executive of Hong Kong Exchanges and Clearing (HKEx), says the city must consider non-standard share structures in order to maintain a competitive edge.

The comments, posted on Li’s blog, come after talks broke down between the HKEx and Chinese e-commerce giant Alibaba, which is gearing up for a $60 bn-plus IPO. Alibaba is seeking a dual-class share structure and wants to nominate a majority of board directors – something Hong Kong has so far refused to allow.

‘Losing one or two listing candidates is not a big deal for Hong Kong,’ says Li on his blog. ‘But losing a generation of companies from China’s new economy is. And losing it without a proper debate is even more unacceptable.’

Talking about the special considerations that could be made for ‘carefully defined’ firms, including ‘innovative companies’, Li stresses the safeguards that would also need to apply – including a minimum public float, market size or ownership by the founders. He proposes a number of share structures that could apply, though none go as far as to allow for Alibaba’s request that a group of senior management be allowed to nominate a majority of board directors.

‘In a less institutionalized 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,’ writes Li.

Alternatives such as these were offered to Alibaba during its negotiations with Hong Kong, reports the Financial Times, however. Citing ‘people with knowledge of the matter’, the paper says Alibaba refused to compromise on its demands.

The call for an open debate on Hong Kong’s listing rules comes as Alibaba chief executive Jonathan Lu told the South China Morning Post the firm is not planning to list in the near future, leaving the door open for a Hong Kong IPO, despite NASDAQ and NYSE each reportedly accepting Alibaba’s proposed share structure.

Calling the issue a ‘matter of public interest’, Li emphasizes that his blog post represents his personal views. ‘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,’ he says. ‘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, and not the person giving his or her opinion.’

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