Quick Take: Hong Kong to Lower Listing Barriers

Companies with a “dual class stock” ownership structure may be able to float their shares on the Hong Kong bourse by the second half of 2018, the city’s financial secretary Paul Chan said.

Hong Kong does not allow listing applications from companies with two tiers of owners. Such a structure gives more weight to the votes of a small group of shareholders — usually founders and senior managers — and less weight to votes of other shareholders.

But there have been voices urging a change, especially after Alibaba Group Holding Ltd., which has a dual class stock structure, eschewed Hong Kong for a New York listing in 2014.

Also, many so-called “new economy” companies are start-ups that have two classes of owners to reward founders. Some believe the removal of this ban could help Hong Kong regain its IPO market-share, some of which it has recently lost to Shanghai.

Meanwhile, Chan said the Hong Kong listing committee — a review panel composed of members from the Hong Kong stock exchange and Securities & Futures Commission — would rather not create a new board to host these dual-class companies. That way, the quality of listed companies will be better managed, he added.

In June, the Hong Kong stock exchange published a proposal regarding setting up a third board, called the New Board, to host technological start-ups and other companies that do not have the track record of profits required by the Main Board. That proposal included a plan to host dual-class companies on the New Board.

Chan said that accepting companies with “dual class” stock appears to be an irresistible move, and Hong Kong must change the way it does things to maintain competiveness.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)