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Hong Kong bourse to allow dual-class shares, with safeguards

Controversial move aimed at attracting 'new economy' companies

HONG KONG -- Hong Kong Exchanges and Clearing will permit the listing of companies that issue shares with different classes of voting power, the operator said Friday, opening the bourse's main market to startups and pre-revenue companies.

The change, expected to take effect by the second half of 2018, may help the Hong Kong market lure internet companies and other members of the so-called new economy. Some attractive businesses make little to no revenue or profit for long periods, such as biotechnology firms during development.

The exchange based its decision on feedback from market stakeholders to a consultation paper published earlier. The paper drew 360 responses, the bourse said in a statement, with "a large majority" supportive of permitting weighted voting rights structures so long as "they are accompanied by certain safeguards that provide appropriate shareholder protection."

"The market has made it clear they want the exchange to take action to broaden Hong Kong's capital markets access and enhance its competitiveness," said Charles Li Xiaojia, chief executive of the exchange.

The bourse has weighed allowing dual-class shares and other measures to accommodate up-and-coming companies since Alibaba Group Holding slipped through its fingers, taking its initial public offering -- the largest ever by a Chinese company -- to the New York Stock Exchange in September 2014 instead.

Protecting equality in voting rights, however, has been a chief principle of the Hong Kong exchange. Debate over allowing dual-class shares continues to rage.

The exchange aims to revise its listing rules in the January-March quarter.

"By the second half of next year, we hope that we will see a significant number of innovative companies beginning to choose Hong Kong," Li said, "making the Hong Kong market a relevant and even more competitive place."

The exchange will require companies with dual-class shares to have a market capitalization of at least 10 billion Hong Kong dollars ($1.28 billion). If their market cap does not exceed HK$40 billion, they would need to show annual revenue of more than HK$1 billion.

But the rules give special consideration for biotech firms, which need heavy funding during drug development yet have difficulty generating profit. Still, such companies would need a market cap of over HK$1.5 billion at time of listing.

The exchange initially considered creating a third market for businesses with dual-class shares, following the main board and the Growth Enterprise Market for small and midsize entities. But market players, concerned about ensuring share liquidity and improving the main board's value, called for adding them to existing markets instead, so the bourse opted to loosen regulations accordingly.

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