Hong Kong Needs Debate on Share-Class Rules, Exchange’s Li Says

October 25, 2013 Leave a comment

Hong Kong Needs Debate on Share-Class Rules, Exchange’s Li Says

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. (388), wrote in a blog post on the exchange’s website today, 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.”

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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