HSI opens door to dual-class, secondary listings

Hang Seng Indexes Company yesterday said it will admit companies with weighted voting rights and secondary-listed companies as constituent stocks, paving the way for Chinese internet giants Alibaba (9988), Xiaomi (1810) and Meituan Dianping (3690) to be included in the benchmark Hang Seng Index.

However, it is difficult to tell whether any tech or other new economy companies will be included in the index in August, said Daniel Wong, director & head of research and analytics of Hang Seng Indexes Company.

The index compiler said weighted voting rights companies and secondary-listed companies from Hong Kong, mainland China, Macau and Taiwan will be eligible to be included in the Hang Seng Index and the Hang Seng China Enterprises Index, with a weighting cap of 5 percent. Hang Seng Indexes will implement the above changes to the HSI and the HSCEI starting from the August 2020 index review.

Hong Kong's stock exchange started allowing companies to list with two classes of shares in 2018, and also streamlined secondary listings by Chinese companies listed overseas, enabling the three tech companies' entry into the market.

Alibaba, Xiaomi and Meituan - the only companies with dual-class or equivalent structures in Hong Kong - are typically among the top five stocks traded by value each month.

Adding the three could drive passive fund flows of US$3.7 billion (HK$28.86 billion) into their shares, Morgan Stanley's analysts said in a note before the announcement. The tech trio is also eligible to join the Hang Seng China Enterprises Index.

Alibaba has a voting structure different from the other two. A small group of current and former senior managers can nominate a majority of its board. But it is likewise treated as a dual-class shares firm by the Hang Seng Indexes Company. It is also the only one of the three with another listing elsewhere, in New York.

Yesterday, Alibaba rose 3.1 percent to HK$203, Xiaomi inched up 0.67 percent to HK$12.04, and Meituan Dianping climbed 2.09 percent to HK$121.9.

Other companies with dual-class shares, such as US-listed internet company Baidu and online commerce firm JD.Com are planning secondary listings in Hong Kong, Reuters reported this year.

Elsewhere, Hong Kong Exchanges and Clearing (0388) will introduce a new spread table and continuous quoting market making obligations for Exchange Traded Products from June 1.