HK, China bourses in talks to include dual-class shares in trading link

By Alun John

HONG KONG (Reuters) - The Hong Kong stock exchange said on Wednesday it has agreed to work with China's bourses towards the inclusion of dual-class shares in a cross-border trading link, marking a step towards resolving a dispute on the issue.

Xiaomi Corp - the first, and so far only, firm to list with two classes of shares under Hong Kong's new listing rules - rose more than 6 percent on the news.

Shares of the smartphone maker had slumped on Monday, after a surprise announcement from two mainland exchanges over the weekend that they would bar investor access to dual-class stocks in Hong Kong, given the complexity of the holdings.

The latest statement from Hong Kong Exchanges and Clearing (HKEX) says dual-class shares will be subjected to an initial "special stability trading period", after which they could be included in the stock connect scheme that allows investors from China and Hong Kong to buy shares in each others markets.

HKEX did not define what it meant by stability nor how long dual-class shares - which give greater voting rights to company founders over individual investors - may have to wait for inclusion in stock connect. The bourse operator has set up a working group with the Shanghai and Shenzhen exchanges to address the issue "as soon as possible".

"Key details like the length of the new stability period, and who decides its length, are still unclear, but this announcement will at least calm things down," said Louis Tse, managing director of asset management at Hong Kong financial services firm VC Group.

"It suggests that an agreement will eventually be reached, boding well for both sides."

UPCOMING DEALS

A resolution would be a relief for Hong Kong, which changed its listing rules earlier this year to attract companies with dual-class shares to the market.

The financial hub already has major IPOs in the queue, such as Meituan Dianping, China's biggest platform for on-­demand services, and steel e-commerce platform Zhaogang.com, that have filed to list with two classes of shares. Meituan's deal is expected to raise more than $4 billion.

Hong Kong's listing reforms have come as the city jostles for the top global IPO venue crown with New York and China.

In the first half of this year, Hong Kong was the top ranked Asian exchange by IPO proceeds, according to Thomson Reuters data. Shanghai was in second place.

"Competition between the Hong Kong exchange and New York and mainland exchanges is inevitable, and the rule changes seem to be part of it," said Mike Suen, a partner at law firm Withers.

"I don't see this particular change, however, it ends up, as having too much effect on where companies decide to list. Inclusion in stock connect is normally a marginal factor in companies' decision," Suen added.

(Reporting by Donny Kwok and Alun John; Writing by Anne Marie Roantree and Alun John; Editing by Muralikumar Anantharaman and Himani Sarkar)