When The Stock Exchange of Hong Kong Limited (HKSE) concluded the discussion surrounding Weighted Voting Rights (WVR) in April 2018, only individuals who have been materially responsible for the growth of the innovative company could benefit from WVR. HKSE has now published a consultation paper, which came out on 31 January, seeking to extend the regime to allow corporate WVR beneficiaries.

Given the controversy surrounding an "evergreen" WVR structure peculiar to corporate WVR, HKSE proposes more investor safeguards including a compulsory "sunset" provision so that the WVR will automatically lapse after a period of not more than 10 years. Below is a comparison between the existing limitations imposed on Individual WVR Beneficiaries and the proposal on Corporate WVR Beneficiaries.

Existing Limitations on Individual WVR Beneficiaries Proposed Limitations on Corporate WVR Beneficiaries
WVR voting power ≤ 10 times of ordinary shares ≤ Five times of ordinary shares (a maximum of 68% voting power at a general meeting for a holder of 30% economic interest (below)
Economic interest in total issued share capital Collectively a minimum of at least 10% and a maximum of not more than 50% 10 percent or more for at least two financial years prior to listing; and at least 30 percent at time of listing of the WVR applicant (and thereafter on an on-going basis)
Contribution to listing applicant Has been materially responsible for the business growth and has an active role within the business Leader of a recognisable ecosystem1 which has materially contributed to and shaped the business growth of the WVR applicant
Qualification/ongoing requirement A director at the time of listing and remains so thereafter
  1. It has a primary listing on HKSE or a Qualifying Exchange2 with a minimum market capitalisation of HK$200 billion at time of listing of the WVR applicant3;
  2. Its corporate representative sits on the board of directors of the WVR issuer;
  3. It complies with 30% minimum economic interest requirement; and
  4. The WVR issuer remains in the ecosystem with access to information and technologies shared within the system
Lapse of WVR
  1. If beneficiary dies, ceases to be a director, or deemed incapacitated or no longer meet directors' requirements (e.g., convicted of an offence involving fraud, disqualified, etc.);
  2. Upon transfer of WVR shares
  1. It no longer remains listed on the HKSE or a Qualifying Exchange;
  2. It no longer has a corporate representative on the board of directors of the WVR issuer for more than 30 days; or its representative is deemed incapacitated or no longer meet directors' requirements; or that itself or its representative has been convicted of an offence involving fraud or dishonesty;
  3. Its economic interest falls below 30%;
  4. If, based on the review(s) by the Corporate Governance Committee of the WVR issuer, the corporate's contribution to the issuer is substantially terminated or materially disrupted or suspended for a period exceeding 12 months
Sunset provision None Must have a time-defined "sunset" period of not more than ten years for the WVR of a corporate WVR beneficiary, which may then be renewed for successive periods of not more than five years with the approval of independent shareholders

You can view the Corporate WVR Consultation on the HKEX website. The consultation period ends on 1 May 2020.

Footnotes

1. To benefit from WVR a corporate must demonstrate that it owns and operates an "ecosystem" at listing (and on an ongoing basis) that benefits the listing applicant ‒ a mere financial investment or an ordinary non-financial contribution (e.g. know-how or strategic advice) will not be sufficient. The "ecosystem" must have the following characteristics:

  • There is a community of companies (which includes the listing applicant) and other components (which may be non-legal entities such as business units of the corporate shareholder, user or customer bases, applications, programs or other technological applications) that has grown and co-evolved around a technology or know-how platform or a set of core products or services, owned or operated by the prospective corporate WVR beneficiary (for the avoidance of doubt, such platform or products or services does not need to represent the main business of the prospective corporate WVR beneficiary);
  • The components within the ecosystem (including the listing applicant) both benefit from, and contribute to, the ecosystem by sharing certain data, users and/or technology (for example, software, applications, proprietary know-how or patents);
  • The ecosystem must have attained meaningful scale, which will normally be measured by reference to indicators such as the number and technological sophistication of the components connected to the ecosystem, the size of its (combined) user base, or the frequency and extent of cross-interaction between the users or customers of different components;
  • The core components within the ecosystem, and the listing applicant, are in substance controlled by the corporate WVR beneficiary; and
  • The growth and success of the listing applicant was materially attributable to its participation in and co-evolvement with the ecosystem; and the applicant is expected to continue to benefit materially from being part of that ecosystem.

2. "Qualifying Exchange" means NYSE, NASDAQ or the Main Market of the London Stock Exchange (and belonging to the UK Financial Conduct Authority's "Premium Listing" segment).

3. The listing applicant must not represent more than 30% of the corporate WVR beneficiary in terms of market capitalisation at the time of listing.

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