By Alec Macfarlane, Reuters From Nasdaq

HONG KONG, June 14 (Reuters Breakingviews) – Hong Kong could teach Chinese technology companies some manners. Web portal Sina is planning a secondary listing in the city, taking advantage of new rules introduced in April welcoming tech outfits from the People’s Republic traded overseas. In New York, the $7 billionSina and its peers can issue super-voting stock without shareholder approval and skip annual general meetings. Hong Kong will force them to behave better.

Having a secondary listing in Hong Kong wasn’t previously an option for Chinese companies that had already chosen to list outside of Greater China. To lure these companies closer to home, Hong Kong Exchanges and Clearing, the city’s stock exchange operator, will now embrace Chinese companies with foreign primary listings, as well as those with super-voting stock, which the city now permits.

For starters, Hong Kong won’t allow companies to issue dual-class shares if they don’t have them already. Sina did this in November without shareholder approval following a run-in with an activist, and Nasdaq turned a blind eye because the practice is permitted in the Cayman Islands. Investors will be spared such ordeals if their New York-listed Chinese outfits trade in Hong Kong, too.

There are other silver linings. Secondary listing candidates will have to host AGMs, a rule that doesn’t apply for Cayman Island companies listed stateside, where tech outfits including $94 billion search-engine operator Baidu and $59 billion e-commerce giant JD.com routinely skip them. Investors will also have to be given reasonable notice of such forums.

Western-listed Chinese tech titans that come to the city will enjoy some dubious benefits, like not having to follow Hong Kong’s rules on takeovers, which include significant investor protections. But if the bulk of trading in a company moves to Hong Kong then they will be treated even more strictly, like a primary issuer. That’s a good incentive for global investors to start buying in the Fragrant Harbour, too.

CONTEXT NEWS

– Chinese web portal Sina is planning a secondary listing in Hong Kong. The Nasdaq-listed company could debut in the city in the fourth quarter of this year, Reuters reported on May 24.

– Hong Kong Exchanges and Clearing (HKEX), which operates the city’s stock exchange, introduced new rules in April specifically to encourage Chinese technology companies trading in London and New York to add a Hong Kong secondary listing. Many of these issuers also have dual-class shares, which Hong Kong now permits.

– At the time of announcing the new rules, HKEX added that secondary listings candidates would need to follow certain corporate governance practices. Companies that do not have dual-class shares cannot issue them. They must also hold annual general meetings.

– Currently, companies from the People’s Republic listed in New York are allowed to follow select corporate governance practices of their “home” countries. Many of these Chinese companies are incorporated in the Cayman Islands, where companies can issue dual-class shares with no shareholder approval and AGMs are not mandatory.

HKEX consultation conclusions on new listing regime (graphic).

IMAGE: Shutterstock photo

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