The controversial introduction of dual-class shares on the Hong Kong Stock Exchange is the biggest shake-up of listing rules in decades

Back in 2014, Hong Kong’s stock exchange rejected Alibaba’s application for an initial public offering because the company wanted to adopt a dual-class share structure. The decision meant losing the world’s biggest IPO, as the Chinese company eventually went to New York and raised a record US$25 billion.

It was a blow to executives at the exchange and led to a period of soul-searching that culminated this year in a belated U-turn on the issue. In the biggest change to Hong Kong’s listing rules for years, the exchange issued new guidelines in April that allow for dual-class shares in certain circumstances, while emphasising that “one share, one vote” continues to be the “optimum method of empowering shareholders and aligning their interests in a company.”


“The market has made it clear they want the exchange to take action to broaden Hong Kong’s capital markets access and enhance its competitiveness,” said the exchange’s chief executive, Charles Li.

In July, Xiaomi became the first company to launch an IPO on the Hong Kong exchange with dual-class shares, following in the footsteps of US tech firms like Snapchat, Google and Facebook with dual-class shares in other jurisdictions.

What’s all the fuss about?

As the exchange mentioned in adopting the new rule, a core principle of Hong Kong listings has always been that each share in the company entitles the shareholder to a vote—one share, one vote.

However, many entrepreneurs would prefer to raise money from the public while still retaining an iron grip on the company’s strategy. And they are able to do this in the US by issuing a special class of shares to themselves that gives them extra voting power, even after their ownership stake in the company is diluted—which prevents shareholders from having a say in the strategy of the company they own.

Why is the exchange doing it?

The new guideline is aimed at “new economy” companies. With the booming tech sector in Mainland China, the exchange is keen not to miss out on another Alibaba opportunity. After all, as Webb says, the exchange is a for-profit enterprise that’s in the business of attracting these types of companies to list on its board.

However,  there is no clear definition of what a “new economy” company is. Companies could start claiming they’re in the tech business because they have a website and an app.

What does this mean for investors?

The good news is more choice. “Overall, our sense is that a broad range of investors, including buy-side fund managers and other institutional investors, are now keen to access a far more diverse range of larger listed companies in Hong Kong, particularly tech companies,” said Ashley Alder, chief executive of the Securities and Futures Commission.

The bad news is weaker protections for ordinary investors, even as mainland authorities are moving in the opposite direction and getting tougher on listed companies. Buyer beware!

See more stories in our Wealth section

© 2022 Tatler Asia Limited. All rights reserved.