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Just say no

4 November 2016 By Pete Sweeney

Hong Kong regulators should shrug off the latest salvo from Alibaba founder Jack Ma. In an interview with the South China Morning Post, Ma warned he might list the $60 billion Ant Financial elsewhere if Hong Kong can’t embrace “innovation”. Creativity is all well and good, but Hong Kong can still innovate without damaging shareholder democracy.

Ma himself does not directly call for any such thing, but the article – published in a newspaper the Alibaba Group owns – makes it difficult to see it as disinterested. The intervention comes in the midst of a running battle between the Securities and Futures Commission, investors, banks and firms. So it reads like a veiled threat: concede on dual-class shares or lose another valuable tech listing to the Americans, as happened with Alibaba’s own $25 billion listing two years ago.

The article points out how dual-share structures, which let bosses control listed companies without majority stakes, are popular among tech stars like Facebook and Google. It notes that the Singapore exchange recently approved such structures. For Hong Kong Securities and Clearing, which saw third-quarter profit drop by a third on slackening volume, seeing this on the front page of the city’s leading English daily adds insult to injury.

As a lobbying effort, this is a misfire. For starters, Ant Financial doesn’t currently use a dual-share structure, nor does it need an exception to Hong Kong’s other barrier to startups, a three-year profitability requirement. Unlike Alibaba, Ant holds banking licences and sensitive financial data; the Chinese government is unlikely to let it list in New York.

And Ma shows untrammelled founder authority can be a double-edged sword. In 2011, it emerged that Ma had moved Alipay, now a central part of Ant, out of Alibaba to his direct control. That prompted vociferous objections from other shareholders in Alibaba, which was unlisted but had a listed Hong Kong subsidiary.

At Alibaba he has used his authority to rack up erratic acquisitions, including the foray into newspapers. In addition, there are plenty of technology heavyweights – Microsoft and Apple for two – where founders did not need dual-class shares to succeed. Hong Kong regulators can turn the other cheek, and hold their ground.


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