Hong Kong and Singapore are at it again. The Asian financial hub rivals are reviving a debate on dual-class shares as global competition for the hottest initial public offerings (IPO) intensifies.
Singapore is a few steps ahead. Singaporean Prime Minister Lee Hsien Loong (李顯龍) last week gave his approval to dual-class shares and other measures proposed by a panel to drive economic growth.
The Singapore Exchange Ltd (SGX) on Thursday started a public consultation, a final hurdle before allowing the structure.
Hong Kong Exchanges & Clearing Ltd (HKEX) chief executive officer Charles Li (李小加) last month revisited the topic after a 2015 proposal was shot down by his regulator.
While Hong Kong is one of the world’s leading IPO venues, it has been passed over by big Chinese companies such as Alibaba Group Holding Ltd (阿里巴巴) and Baidu Inc (百度), which listed on New York bourses where different classes of shares are allowed.
As Alibaba’s banking and payments arm Ant Financial Services Group (螞蟻金服) prepares an IPO, Singapore and Hong Kong are trying to balance the interests of founding shareholders with those of other investors.
“The timing is not a coincidence in that it is seemingly driven by high-profile IPOs that feature dual-class structures,” said Mark Humphery-Jenner, a Sydney-based associate professor of finance at the University of New South Wales Business School. “It is an attempt to capture a share of entrepreneurial listings and to provide an alternative to a US exchange.”
Dual-class structures comprise a class of stock, often distributed to founding shareholders, that carries more voting rights than the ordinary shares sold to the public.
Facebook Inc has said such shares allow its founder and CEO Mark Zuckerberg to focus on long-term goals instead of being distracted by the short-term pressures of a listed company.
About 15 percent of IPOs in the US had the structures in 2015, up from 1 percent in 2005, according to a presentation by Gilbert Matthews, senior managing director of San Francisco-based Sutter Securities Inc.
More than half the dual-class IPOs in the US in 2015 were technology companies.
Weighted voting rights are not allowed in countries including Spain, South Korea and India. One reason is many institutional investors are opposed to the structure and its implications for effective corporate governance.
“We, as with the overwhelming majority of other long-term investors, strongly believe in ‘one share one vote,’ with control proportionate to economic interests,” said David Smith, head of corporate governance at Aberdeen Asset Management Asia Ltd, a unit of Aberdeen Asset Management PLC.
“We are very concerned that this effects a contagion across the region, with other exchanges no doubt having to reconsider their position on this issue if SGX does indeed go ahead,” he said.
In the US, companies with more than one type of share class have tougher reporting rules and shareholders can band together on lawsuits. The bar for similar lawsuits in Singapore and Hong Kong is much higher.
While SGX’s listing advisory committee gave the nod to dual-class shares, it said it wanted safeguards in place, and added that the one-share-one-vote structure would be the default for new listings.
In October last year, Hong Kong’s chief regulator, Securities and Futures Commission CEO Ashley Alder, said it was not impossible some version of the structure could be accepted on the territory’s markets.