The Hong Kong Investment Funds Association looks forward to working closely with authorities and relevant stakeholders to develop safeguards that protect investor interests after the city’s listing regime is revised to permit dual-class shares.
The HKIFA fears the new shareholding structure will reduce minority-shareholder protection as it will strip investors of an important tool to hold sway over the management of a listed company.
A six- to eight- week consultation on the rule change will begin after the Lunar New Year holiday next month
The association believes dual-class shares go against investor interests. Normally, investors own the right to participate in the selection of the board of investee companies as well as to vote on proposals related to remuneration. If they are deprived of these rights, their ability to ensure their interests are protected will be undermined, the HKIFA said.
Under the dual-class framework company owners, with a controlling share of voting rights, may also have an incentive to divert corporate assets and exploit opportunities for personal gain, the HKIFA added.
Chief Executive of Hong Kong Exchanges and Clearing Charles Li Xiaojia last month said the system of minority shareholder protection will keep running and not be weakened by the introduction of the new shareholding structure. He said more specific protection measures will be worked out to cope with potential problems and risks.
Dual-class shareholding structures have been banned in Hong Kong since the 1980s. Adherence to the “one share, one vote” principle is believed to be the main reason the city failed to win the listing of Chinese mainland internet giant Alibaba Group Holdings in 2014; the e-commerce behemoth chose New York instead.
“A series of companies migrated across to the United States to pursue listings. As a profit institution, HKEx will absolutely take the chance and attract more firms to list in Hong Kong,” said Jonathan Lowe, investment director of equity at JP Morgan Asset Management.
A six- to eight- week consultation on the rule change will begin after the Lunar New Year holiday next month, Li announced on Tuesday. Mainland handset maker Xiaomi is rumored to be lining up as the first company to list in Hong Kong using the dual-class framework when the new listing rule is implemented in June this year.
“This is just the beginning. We will use our best endeavors to work with the authorities to come up with measures that can accord the maximum protection to investors,” said Sally Wong Chi-ming, chief executive of HKIFA. “More importantly, we look forward to developing mechanisms to monitor the effectiveness on an ongoing basis.
“It is incumbent upon the authorities to fully explain the inherent risks of such a structure, the limitations of the safeguards, as well as what investors have been deprived of or given up in return for the potential investment opportunities,” Wong reiterated.
Hang Seng Indexes Company, compiler of the Hang Seng family of indexes, on Wednesday launched a consultation on the eligibility of foreign companies, stapled securities and weighted voting right companies for inclusion in the Hang Seng Composite Index to ensure the index remains a representative benchmark.
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