The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today published conclusions to its concept paper on weighted voting rights, or WVRs (Concept Paper).
The Concept Paper sought views on whether governance structures that give certain persons voting power or other related rights disproportionate to their shareholding (WVR structures) should be permissible for companies listed or seeking to list on the Exchange's markets.
Currently, both applicants and listed companies must ensure that the voting power of their shares bears a "reasonable relationship" to the equity interest those shares represent (Note 1). This means a shareholder cannot have greater voting power than another if both have the same amount of equity in a company. This is commonly known as the "one-share, one-vote" concept.
Having carefully considered all the responses to the Concept Paper, the Exchange has concluded that there is support for a second stage consultation on proposed changes to the Listing Rules on the acceptability of WVR structures. As indicated in the Conclusions to the Concept Paper, the Exchange is in the process of finalising a draft proposal that is intended to be refined through discussions with stakeholders to ensure that it has the benefit of their views before putting forward a proposal for formal consultation in the third quarter of 2015 or early in the fourth quarter of 2015, depending on the feedback.
"WVR structures should not be available in all circumstances. We are considering proposing that, generally, "one share, one vote" should prevail but that WVR structures should be allowed for certain companies in certain circumstances and with certain safeguards. It is not our intention that such structures become commonplace in Hong Kong", said David Graham, HKEx's Chief Regulatory Officer and Head of Listing.
The second stage consultation will also consider, as a separate issue, the secondary listing of companies with WVR structures. The Exchange will also seek feedback on whether the current prohibition on secondary listing for companies with a Greater China "centre of gravity" should be relaxed to a certain extent (Note 2).
The Conclusions to the Concept Paper can be downloaded from the HKEx website.
Main Board Listing Rule 8.11 (GEM Listing Rule 11.25) states:
"The share capital of a new applicant must not include shares of which the proposed voting power does not bear a reasonable relationship to the equity interest of such shares when fully paid ("B Shares"). The Exchange will not be prepared to list any new B Shares issued by a listed issuer nor to allow any new B Shares to be issued by a listed issuer (whether or not listing for such shares is to be sought on the Exchange or any other stock exchange) except:-
||in exceptional circumstances agreed with the Exchange; or
in the case of those listed companies which already have B shares in issue, in respect of further issues of B Shares identical in all respects with those B Shares by way of scrip dividend or capitalisation issue, provided that the total number of B Shares in issue remains substantially in the same proportion to the total number of other voting shares in issue as before such further issue."
||This is the prohibition on companies with a "centre of gravity" in Greater China secondary listing on the Exchange.Various factors are taken into account to determine this "centre of gravity" including place of headquarters, operations and nationality of management (see Joint Policy Statement Regarding the Listing of Overseas Companies (27 September 2013), paragraphs 94 and 95).