The View | Hong Kong must take a lead in tech listings or forever play catch-up

The changes to Hong Kong stock exchange’s listing rules last month seemed reluctant and timid, considering how profound the consequences are likely to be.

The dilemma facing Hong Kong Exchanges and Clearing (HKEX) for years was about more than being arbitraged against other stock exchanges over dual-class shares and losing the listing business of world-class mainland tech companies.

The deeper malevolence is that there are no rational reasons for management or owners of a listed company to demand dual-class shares or weighted voting rights. They usually claim their company culture is special. Or the technology is so vast and complex that they need protection from troublesome predators or activists, or even worse – the ignorant vagaries and decisions of outside shareholders over issues like management pay or dividend payouts.

Every manager and owner thinks they and their businesses are special. However, if your business is so hard to comprehend, why should it be listed for average public investors? It’s a paradox no one can answer. Indeed, it should just trade among sophisticated institutional investors. Like Facebook did before its IPO. In that case, critics said it traded out its full value in the private equity market, leaving little for the IPO, which may have accounted for its price drop right after the flotation.

The corporate governance contortions that investors must force themselves through with mainland companies now ranges from dual-class shares and VIE (variable interest entity) structures to restrictions on foreigners to gain access to accounting working papers in China due to secrecy laws.

The consultation paper on the proposed listing-rule changes acknowledged the difficulty of defining a “new economy” or high-technology company. The term is vague and not restricted to any one group of industries. Then, all of a sudden it proposes to initially limit eligible tech companies to biotech enterprises with a minimum expected market capitalisation requirement of no less than HK$1.5 billion.