18 October 2019
HKEx chief executive Charles Li has announced proposed changes to the listing rules to attract "new economy" companies. Photo: Reuters
HKEx chief executive Charles Li has announced proposed changes to the listing rules to attract "new economy" companies. Photo: Reuters

Dual-class listing plans draw interest from local startups

Hong Kong Exchanges and Clearing (HKEx) has announced a proposal to allow the listing of “new economy” companies with dual-class share structure, and a revised listing rule for biotech companies with no track record of profitability.

Alvin Lam Yat-fung, chief executive of venture-capital firm T12M Ventures, recently discussed with the Hong Kong Economic Journal the revamp of IPO rules and its impact on local startups.

Here are excerpts from that interview:

Q: Do you think the new listing rules would help local startups to get funding for development?

A: According to the proposal, the exchange will require companies with dual-class shares to have a market cap of at least HK$10 billion and annual revenue of at least HK$1 billion, which poses a high barrier to entry for local startups. But it would serve well as a pilot scheme to get the larger startups listed first.

A share structure with dual voting rights had long been banned in the city’s stock exchange in the past. Hong Kong startups pursuing IPO would normally go to the United States. However, high IPO listing fees, tight listing regulations, along with the difference in the time zones for trading – all these drawbacks discourage local startups.

With the new listing rules launched, Hong Kong would be a tempting option for local startups.

Q: Many believe that the dual-class share structure is necessary for founder-led startups, for example, Alibaba, which eventually listed in New York. Is it a common practice among startups at the beginning stage?

A: Under the dual-class share structure, the shareholding right of certain investors would be restricted, while the founder can retain control of the company with a minority stake. Therefore, not too many startups have the bargaining power to get that offer, except those startups founded by tech celebrities such as Elon Musk’s Hyperloop One, or those famous startups like DJI.

Q: The new rules only favor “new economy” companies to raise capital in the city. How would you define a “new economy” company’?

A: In fact, lots of companies nowadays have their own transformations into digital business models. I believe that those engaged in sharing economy, trading platform, intelligent matching platform, as well as businesses related to blockchain, artificial intelligence and fintech should be classified as “new economy” companies.

However, what about e-commerce companies started before 2000? Do they belong to the category of “new economy” companies? I think that’s a question that needs to be answered.

This article appeared in the Hong Kong Economic Journal on Jan 5

Translation by Ben Ng

[Chinese version 中文版]

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Hong Kong Economic Journal