Hong Kong Allows Dual-Share IPOs, Creates Concessionary Secondary Listing Route

Hong Kong will now allow companies with weighted voting right (WVR) structures and unprofitable biotech companies to list on its stock exchange, relaxing its insistence on one-share, one-vote in the governance of listed companies and compliance with financial eligibility tests. It has also created "a new concessionary secondary listing route" for Greater China and international companies that were previously not permitted to have a secondary listing in the territory.

“After a remarkable four-year journey of careful deliberation, HKEX’s new listing regime is finally open for business," said Charles Li, Chief Executive of HKEX, parent of the Stock Exchange of Hong Kong. "We are now at the dawn of an exciting new era for Hong Kong’s capital markets."

Upending one-share, one-vote

Hong Kong had lost out to New York in the US$25-billion initial public offering of Chinese Internet giant Alibaba in 2014 because the stock exchange declined to make an exception to its one-share, one-vote rule. Alibaba has an effective dual-share structure that gives a group of 27 managers higher voting rights than other shareholders, enabling the company's founders to retain control even though they do not own a majority of the shares.

The one-share, one-vote rule has now been relaxed for companies in "emerging and innovative sectors" such as high technology. But the HKEX says there are "appropriate investor safeguards," including "limits on WVR power and rules to protect non-WVR holders' right to vote, in addition to enhanced corporate governance requirements."

Pre-revenue biotech companies now join mining companies in being eligbile for exemption from main board financial eligibility tests, but "measures would be put in place around fundamental changes of principal business and a more streamlined de-listing process to address potential 'shell' concerns," says the HKEX.

Secondary listing

Alibaba is now eligible for a secondary listing in Hong Kong, which previously disallowed secondary listings for overseas companies with their "centre of gravity" in Greater China. Such companies with primary listing in the New York Stock Exchange, NASDAQ or the Main Market of the London Stock Exchange will be considered for a secondary listing in Hong Kong.

The proposals had been offered for comment by stakeholders. In response to the submissions, the HKEX said further amendments will be made, including:

  • Providing more guidance on examples of what the Exchange would normally consider to be a “Sophisticated Investor” and “meaningful investment” in relation to biotech issuers;
  • Providing more flexibility on the exclusion of cornerstone investments and subscriptions by existing shareholders from the determination of a public float for pre-profit/pre-revenue biotech issuers;
  • Removing the proposal that a WVR beneficiary, or WVR beneficiaries collectively, hold less than a 50 per cent underlying economic interest in an issuer with a WVR structure at listing (on the basis that an issuer is in any event required to ensure that at least 10% of votes are available to non-WVR shareholders at general meetings); and
  • Requiring the Corporate Governance Committee to be made up entirely of independent non-executive directors (rather than a majority as originally proposed) to require them to make recommendations to the board on certain matters; and
  • Facilitating confidential filings by eligible applicants under the new concessionary secondary listing route.




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