It is like destiny. Among Hong Kong’s nearly 1,700 listed companies, only one — Swire Pacific — has a two-tier share structure.
As corporate encyclopedist David Webb noted, the destiny was written in the stock codes – Swire Pacific A as 19 and Swire Pacific B as 87 — because 1987 was the year Hong Kong banned B shares and rejected Jardine’s request to split its shareholding structure amid a potential takeover.
Fast forward 27 years and the B-share ban is still on, largely under the radar, until Alibaba Group challenged it in its desire to list in Hong Kong. Rebuffed by regulators, it ran into the arms of the United States stock market where B shares are allowed, enabling corporates more voting control after listing.
Ditto for Jardine. The British group went on to outperform its peers such as domestic Hutchison Whampoa and Wharf Holdings since listing outside Hong Kong.
In an exclusive interview with the Hong Kong Economic Journal today, Swire Pacific’s new chairman, John Slosar, said he has no plans to give in to the dual-class share system, which he described as neither allowable nor a market trend.
So why does Swire still insist on the pointless colonial heritage?
Swire Pacific, the conglomerate that owns Swire Properties, Cathay Pacific and a South China agent of Coca Cola, was grandfathered into the B-share regime, along with four other listed companies including three from Wheelock Group (New Asia Realty, Lane Crawford, Realty Development Corp). All companies with B shares were privatized before 2004, except Swire Pacific.
B shares work perfectly for companies with low ownership but more controlling rights such as Google or Microsoft. But it does not apply to Swire Pacific, whose controlling shareholder, John Swire & Sons, commands 34 per cent of A shares and nearly 69 per cent of B shares.
The family’s effective control of Swire is more than 47 per cent, more than Li Ka-shing controls Cheung Kong or the Kwok brothers hold Sun Hung Kai Properties.
If the threat of a potential takeover was not an issue, why did Swire raise its stake — more than 3 per cent in the past year — via A shares but not B shares which traded at a deep discount to A shares? (The B-share discount did provide a relatively cheap way to buy into Swire, considering its active turnover.)
Or did Swire want to make zero mistake and secure more than 50 per cent of the equity before unifying the A/B share structure and putting an end to the system that already drove away Jardine and Alibaba?
Slosar said Swire respects each shareholder and maintains excellent corporate governance and transparency (which lives up to its blue-chip status, I reckon) but its shareholders should ask why the company should keep a system that means nothing and is out of favor even to its major shareholder.
Jack Ma should protest.
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