The rivalry between two Asian financial centers is getting heated and the region’s CFOs may be the beneficiaries. Both Hong Kong and Singapore are planning to ease initial public offering rules to attract new listings, including dual-class shareholding.
The intensified competition was on display when Ashley Alder, Chief Executive of Hong Kong’s Securities and Futures Commission (SFC), made trenchant remarks at a public forum in Hong Kong in response to statements made by an executive of the Singapore Exchange.
“Hong Kong is part of China, whether you like it or not. Singapore is not. Is Hong Kong really the best place to list, where China has some influence on the Securities and Futures Commission?”
Not every company will benefit. Both Hong Kong and Singapore are targeting “innovative” enterprises, typically in high technology fields such as IT and biotechnology. And safeguards will be put in place to protect minority shareholders, including a minimum expected market capitalization and eventual conversion of multiple-vote shares to one-vote shares.
Not Very Adult
The spat between the bourses came to a boil when the Singapore Exchange’s Chew Sutat, who is the executive vice president in charge of equities and fixed income products, observed in a media conference in Hong Kong that “Hong Kong is part of China, whether you like it or not. Singapore is not.”
Asked Chew: “Is Hong Kong really the best place to list, where China has some influence on the SFC?”
“We don’t normally as an organization dignify remarks made by competitors with a response, but I thought today I’d make an exception to that rule,” Alder responded on March 14.
Characterizing Chew’s remarks as not “very adult,” he said any suggestion that the SFC is influenced by China “is totally false.” Alder described the relationship between China’s policy makers and the Securities and Futures Commission as one that is “arm’s length.”
Weighted Voting Rights
The testiness highlights the intensifying competition between two of Asia’s leading financial centers. The stock exchanges in both cities are proposing new rules to attract initial public offerings, including allowing weighted voting rights (WVR) structures. In 2014, Hong Kong lost out to New York on e-commerce giant Alibaba’s blockbuster US$21.8-billion initial public offering because its stock exchange’s one-share-one-vote rule did not allow founder Jack Ma to retain control of the company.
In the proposed new rules that may come into force in April, at the earliest, the Hong Kong Stock Exchange will be flexible in allowing the listing of companies with WVR structures. Existing rules actually allow the bourse to permit, in exceptional circumstances, the listing of shares “that have voting power that does not bear a reasonable relationship to the equity interest of those shares,” but the exchange has never exercised this option, not even for Alibaba.
Under the proposed new listing rule, “good quality, high growth and innovative companies” will be allowed to have WVR structures. These companies “sometimes rely heavily” on the technical expertise, market knowledge and foresight of their owner managers, observes the proposal, but often see the shareholdings of those managers diluted as the company raises funds from outside investors prior to its IPO.
Thus, when they finally list, these companies want to put in place WVR structures to enhance the voting power of key individuals so they can maintain control, despite owning only relatively small number of shares.
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