Hong Kong I.P.O. Structure Is Fine as Is, Investor Survey Finds

HONG KONG â€" Hong Kong may have lost Alibaba’s giant initial public offering to the United States, but for some large investors in this Asian financial hub, that’s just fine.

On Tuesday, the Asian Corporate Governance Association released the results of a survey it conducted among its members showing that nearly all respondents were opposed to dual-class shareholding structures â€" or partnership control structures, like Alibaba’s â€" that give management a disproportionate say over how companies are run.

The governance association surveyed 70 institutional investors and received 54 responses from companies with combined assets under management of around $14 trillion. The results of the survey showed more than 90 percent of respondents opposed allowing dual-class shareholding structures and partnership control structures in Hong Kong.

“We’re not against Alibaba listing in Hong Kong, and we have nothing against Alibaba as a company,” Jamie Allen, secretary general of the governance association â€" an independent and nonprofit group â€" said Tuesday at a press briefing. “We just don’t want to undermine ‘one share, one vote,’ ” he said.

Alibaba is now on course for a listing on the New York Stock Exchange or Nasdaq and is expected to eclipse the $16 billion that Facebook raised two years ago. The company turned to the United States after negotiations to list in Hong Kong came to a standoff last September over the Chinese e-commerce giant’s voting structure, which gives a core partnership committee that includes founder Jack Ma and other top executives the right to nominate a majority of the company’s directors.

Such structures are common in the United States among technology companies like Facebook or LinkedIn, or among family businesses, including The New York Times Company. But Hong Kong generally doesn’t allow such structures.

The governance association’s survey results suggested that if such structures became common, an average discount of around 13 percent should be applied to the Hong Kong stock market as a whole. And if Alibaba had been allowed to list with its partnership structure, its stock should have been discounted by around 19 percent on average.

Hong Kong was the world’s biggest market for I.P.O.s for three years from 2009 to 2011, and ranked second last year, after the United States. But the Alibaba I.P.O. incident has triggered a fierce debate in Hong Kong’s financial industry about the costs of preserving the city’s “one share, one vote” principles in the face of rising competition for new listings. It has also led to no small amount of soul-searching at Hong Kong Exchanges and Clearing, known as HKEx, the government-invested company that acts as both a profit-seeking stock exchange operator and a market regulator.

“For potential China listing candidates from the technology and new economy space, their absolute top choice of listing venue has always been Hong Kong,” Charles Li, the chief executive of HKEx, wrote last week in a post on his official blog. “Many would be, however, forced to go to the U.S. should weighted shares be a key consideration offsetting other advantages Hong Kong has to offer. If this becomes a trend, Hong Kong could lose a huge franchise for good,” Mr. Li wrote.

HKEx is widely expected to launch a public consultation on potential reforms to the city’s listing rules in the coming months, to get formal feedback on allowing nontraditional shareholding structures.

Mr. Allen of the governance association argues that adopting an attitude that “what works in the United States can work in Hong Kong” would lead to the “worst of all possible worlds.”

Multi-class shareholding structures like those in the United States â€" Google just added a third class with zero voting rights â€" are out of step with Hong Kong’s regulatory infrastructure, Mr. Allen said. Compared with the United States, Hong Kong lacks required framework for investors to initiate class-action lawsuits and is generally weaker in terms of disclosure requirements and regulatory powers, he said.

Alibaba has consistently defended its governance structure. In a blog post in September, the e-commerce company’s executive vice chairman, Joe Tsai, wrote that the structure would “enable Alibaba’s partners â€" key people who manage our businesses â€" to set the company’s strategic course without being influenced by the fluctuating attitudes of the capital markets so as to protect the long-term interests of our customers, company and all shareholders.”

“We understand Hong Kong may not want to change its tradition for one company, but we firmly believe that Hong Kong must consider what is needed in order to adapt to future trends and changes,” Mr. Tsai wrote. “The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by.”