5 September 2014
Hong Kong Exchanges and Clearing Limited (HKEx) recently published its long-awaited “Concept Paper – Weighted Voting Rights” (“Concept Paper”) to seek views on whether weighted voting right structures (“WVR Structures”) should be allowed for companies listed or intending to list on HKEx, and if so, to what extent?
Responses to the Concept Paper should be submitted on or before 30 November 2014.
WVR Structures refer to governance structures that grant various persons voting power or other related rights disproportionate to their shareholdings. They can take various forms. A common form used in the United States is listing with dual-class share structures with unequal voting rights. Also, some companies adopt structures which give existing controllers enhanced or exclusive rights to appoint directors (usually a majority) to the board of directors.
Current Position in Hong Kong
It is stated in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“LR”) that a company with shares which have voting power that does not bear a reasonable relationship to the equity interest of those shares when fully paid is not allowed to be listed on HKEx. This restriction is subject to any “exceptional circumstances” agreed with HKEx1. However, HKEx has never applied this exception to list any company so far. Also, this restriction continues to apply after listing.
Accordingly, WVR Structures are currently not permitted in Hong Kong and companies listed or seeking a listing in Hong Kong are only allowed to adopt the “one-share, one-vote” governance structure. This means that a shareholder cannot have greater voting power than another if both have the same amount of equity in a company.
The major purpose of exploring the possibility of allowing WVR Structures is to enhance the competitiveness of Hong Kong as a listing venue, for mainland Chinese companies’ listings as well as international listings, as WVR structures are allowed in some jurisdictions such as the United States.
At this stage, HKEx only aims to seek views on the concept of WVR Structures and is not putting forward any specific LR amendment for consultation. If there is support for a material amendment to the LR in order to adopt WVR Structures, a second stage formal consultation would be required for the LR amendment including details of the scope and language of any proposed changes.
We will closely monitor the latest developments in this matter and will issue updates as and when appropriate. In the meantime, please do not hesitate to contact us if you require any advice or further information.
1 Please refer to LR 8.11 which 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:
1. in exceptional circumstances agreed with the Exchange; or
2. 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.”