February 23, 2018 / 8:58 AM / in a month

HKEX outlines rules for dual-class shares

HONG KONG (Reuters) - Hong Kong Exchanges and Clearing, the city’s exchange operator, said last Friday it plans to offer concessions to US and UK-listed companies considering a secondary listing in Hong Kong.

FILE PHOTO: The name of Hong Kong Exchanges and Clearing Limited is displayed at the entrance in Hong Kong, China January 24, 2018. REUTERS/Bobby Yip/File Photo

The plans are part of the exchange’s efforts to woo blockbuster Chinese companies to its market, including tech giants such as Alibaba and Baidu that are listed in New York.

“We still have a lot of restrictions on companies that are listed in other jurisdictions (for secondary listing in Hong Kong) and we want to make changes to that,” said Charles Li, chief executive of HKEx.

The exchange on Friday published details of the proposed rule changes, which are part of a package that will also allow some companies to list with weighted voting rights that give greater power to founding shareholders.

Dual-class shares have been a contentious topic in Hong Kong since the city’s strict adherence to a one-share-one-vote principle cost it the $25 billion (17.88 billion pounds)float of Alibaba, which instead listed in New York in 2014.

HKEx has proposed to allow companies to list with a WVR structure, provided that they can demonstrate that they are an “innovative company”.

It listed a number of factors that identify a company as such, including that its core business is engaged in new technologies or business models, or that research and development is a significant contributer of its expected value.

HKEx proposed that the WVR structure be limited to companies with an expected market capitalisation of no less than HK$10 billion ($1.28 billion) before listing, and revenue of at least HK$1 billion if its market cap is less than HK$40 billion.

It has also proposed a number of safeguards, including restrictions on companies from increasing the proportion of WVR in issue and stipulating that certain key matters, including the appointment of non-executive directors, will still be decided on a one share, one vote basis.

The exchange plans to limit companies seeking a secondary listing in Hong Kong to innovative companies and those who have been listed on the New York Stock Exchange, Nasdaq or the premium listing segment of London Stock Echange’s main market and have a good record of compliance for at least two years.

Any secondary listing applicant with either a WVR structure or which is based in Greater China will need to have at least HK$1bn in revenue and a market cap of no less than HK$40 billion at the time of its secondary listing.

HKEx will also allow biotech companies at the pre-revenue stage to list on the Main Board provided subject to certain criteria around market cap, the company’s investor base, and its R&D experience.

Respondents have until March 23 to provide HKEx with their feedback.

Additional reporting by Thomas Blott

Reporting by Sumeet Chatterjee and Jennifer Hughes; Editing by Muralikumar Anantharaman

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