2-23-18 5:33 AM EST | Email Article
By Gregor Stuart Hunter 

Hong Kong's stock exchange, losing listings to New York and London, is advancing a plan to permit initial public offerings that restrict shareholders' voting rights.

Hong Kong Exchanges and Clearing Ltd. is beginning a public-comment period on a proposal to permit listings by companies with so-called weighted voting-rights structures. The controversial structure, which allows founders to exercise disproportionate voting powers, is used by many U.S. technology companies.

News Corp., the owner of The Wall Street Journal's parent, Dow Jones & Co., has two classes of shares, giving Rupert Murdoch and his family greater influence.

The consultation period will close March 23, with conclusions expected in late April.

The Hong Kong exchange also proposes allowing secondary listings by Chinese and international companies already listed in the U.S. or U.K., as well as primary listings by biotech companies that haven't turned a profit. Both are forbidden under current rules.

The proposals were first unveiled in December.

The exchange is hoping to attract companies such as smartphone maker Xiaomi, which is seeking a $100 billion valuation for its IPO this year. The change could also draw internet stocks that trade elsewhere, such as China-based e-commerce giant Alibaba Group Holding Ltd., which in 2014 opted to list on the New York Stock Exchange.

"We are proposing a listing regime that will boost Hong Kong's attractiveness for a new generation of companies as well as investors, bringing more dynamism to our stock market," said Charles Li, Hong Kong Exchanges' chief executive.

A previous "concept paper" on weighted voting rights was struck down in 2015 by the Securities and Futures Commission, the city's financial-market regulator. It warned of damage to the city's reputation.

At the behest of the Hong Kong government--headed by a new chief executive since July 1--the exchange and regulator sought a compromise other financial centers.

Hong Kong Exchanges has proposed safeguards, including limiting restricted voting rights to "innovative companies" with market capitalizations of at least 10 billion Hong Kong dollars (US$1.28 billion), and capping voting power at 10 votes a share.

Secondary listings would be permitted only for companies already trading on qualified exchanges, namely in the U.S. or the U.K.

"If we start to get more big name companies here that will increase the turnover," said Jonathan Garrick, who manages the Neutron Asia Absolute Return Fund, which would help support the broader market.

Asset managers in the West have pushed back against structures that favor controlling shareholders at the expense of new investors. And last week weighted voting drew criticism from a U.S. Securities and Exchange Commission member, who said companies should be required to give up the system after a limited number of years.

Index firms including FTSE Russell and MSCI have sought to exclude some companies that limit voting power from their global benchmarks--a decision triggered by the New listing of social-media company Snap Inc., which offers no voting power to shareholders at all.

Write to Gregor Stuart Hunter at gregor.hunter@wsj.com


(END) Dow Jones Newswires

February 23, 2018 05:33 ET (10:33 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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