Hong Kong bourse to review listing rule, after Alibaba IPO loss

By Lawrence White

HONG KONG (Reuters) - The Hong Kong stock exchange proposed on Friday to review a listing rule which last year led to the bourse losing out on Alibaba Group Holding's record $25 billion initial public offering (IPO).

Alibaba had sought a listing in Hong Kong but a shareholder structure that allowed top managers and founders including Jack Ma to nominate the board and control the company failed to find support from the Hong Kong regulators. Alibaba subsequently listed in New York.

Hong Kong Exchanges and Clearing Ltd (HKEx) said on Friday it was in the process of finalising a draft proposal on weighted voting rights. A formal consultation on the proposal will be launched in the third or fourth quarter of this year, it said in a statement.

The exchange operator, however, cautioned that the weighted voting rights may not be available widely.

"We are considering proposing that, generally, "one share, one vote" should prevail but that weighted voting rights structures should be allowed for certain companies in certain circumstances and with certain safeguards," HKEx's head of listing David Graham said in the statement.

"It is not our intention that such structures become commonplace in Hong Kong," he added.

Hong Kong has steadfastly preserved the "one share, one vote" principal for many years with a view to protect retail investors, who account for a relatively large proportion of its stock market, when compared with Western markets. But the Alibaba loss has made HKEx re-think its position after some participants criticised it for not embracing changes that some of the more mature markets have adopted.

Retail investors in Hong Kong have opposed weighted voting rights, saying they allow some shareholders' votes in a company to be worth more than those of others.

The Hong Kong bourse's move also comes as a number of U.S.-listed Chinese companies are being taken private with the goal of relisting in the booming Chinese stock markets, which Hong Kong is hopeful of attracting, according to analysts.

"If Hong Kong is losing mandates to the U.S. or in the future to Shanghai, it is good the situation is reviewed," said David Gaud, senior portfolio manager at Edmond De Rothschild Asset Management in Hong Kong.

"But they would need to balance what they are giving away to the major shareholders, founders and promoters, by not forgetting about the minority shareholders," he said.

Among the institutional investors who opposed the move were BlackRock, Fidelity and State Street, while Norges Bank and CICC Hong Kong Asset Management were supportive of the proposal, HKEx said.

(Additional reporting by Umesh Desai; Writing by Denny Thomas; Editing by Muralikumar Anantharaman)