By Alec Macfarlane
HONG KONG (Reuters Breakingviews) - Jack Ma is warming to Hong Kong as a listing venue. The billionaire founder of Alibaba says he will consider listing subsidiaries of his Chinese e-commerce giant in the city. This suggests the local exchange’s push to attract more technology firms, both by allowing super-voting stock and more secondary listings by U.S.-traded firms, is working. The corporate-governance ramifications could be ugly.
Ma’s comments are striking given Alibaba famously spurned Hong Kong for New York for its blockbuster 2014 flotation, largely because of differing governance standards. One big prize for the Fragrant Harbour would be hosting Ma’s financial technology giant, Ant Financial, although Ant is not technically an Alibaba subsidiary.
In one sense, this endorses the overhaul by the market operator, Hong Kong Exchanges and Clearing. Alain Lam, regional head of technology, media and telecoms investment banking for Credit Suisse, told a Breakingviews Predictions event in Hong Kong on Tuesday that the loosening of restrictions would be “good for the market,” giving more choice to Chinese firms for whom New York was previously the only real option. Ma’s remarks support the idea this will at least boost listing volumes.
But this is less welcome news for investors. The Hong Kong market is already beset with scandals and poorly run companies. Bending the rules in favour of founders – just as super-voting shares start to fall out of favour in the United States – would make matters worse.
Secondary listings could introduce another problem, too. Pru Bennett, head of investment stewardship for Asia Pacific at BlackRock, told the Breakingviews audience a majority of New York-listed Chinese tech firms actually do not have dual-class shares – but are incorporated in the Cayman Islands, which has “basically no corporate governance standards”. That means big outfits can get away with hosting no annual general meetings, for example. Nor can Hong Kong investors rely on shareholder lawsuits, which provide at least some protection stateside.
To be sure, HKEX promises a “robust regulatory regime” for secondary listings, which could address these problems, but the details are not yet finalised. This new technology needs to be handled with care.
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