Hong Kong exchange may widen weighted voting rights: report

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Alibaba customers and partners rang the bell at its Hong Kong listing ceremony on Nov. 26. (Image credit: Alibaba)

The stock exchange of Hong Kong proposed allowing companies to hold shares with extra voting rights for new Hong Kong listings in an attempt to lure more tech companies to list on the bourse.

Why it matters: Tech companies tend to list with shares carrying so-called weighted voting rights (WVR) to maintain the influence of founders and management after they go public. A change to the listing rules may help Hong Kong to attract more tech unicorns in Asia, especially China, to go public.

  • WVR allows shares of a particular class to have greater voting rights than those of an ordinary share. Some have questioned whether it will undermine Hong Kong’s “one share, one vote” principle.
  • Tech companies including Facebook, Google parent Alphabet, and China’s JD.com all adopted such dual-class share structure when listing in the US.

Details: The Hong Kong Exchanges and Clearing (HKEX) said in a consultation paper published Friday that the latest proposals were designed to attract innovative companies to Hong Kong and add diversity to an exchange dominated by financial services and property companies, according to Reuters.

  • Forty-two out of the 50 largest unlisted Chinese companies had listed corporate shareholders as of November, the report said.
  • Companies may continue to choose the US over Hong Kong for their initial public offerings (IPOs) without WVR access, said the consultation document.
  • Companies holding shares with WVR must itself be listed on the main boards of HKEX, New York Stock Exchange, Nasdaq, or the London Stock Exchange, according to the proposal. It must own at least 30% of the listed company and provide a contribution “that cannot be easily replicated or substituted by other means.”

Context: The Hong Kong exchange remained the world’s biggest IPO market in 2019 despite a year-long political turmoil in the Asian financial hub, according to a report by KPMG.

  • The bourse changed its rules in April 2018 to permit companies to list with shares carrying WVR owned by individuals. Chinese smartphone maker Xiaomi was the first company which listed under this provision