Should dual-class shares be introduced in Malaysia?

  • Business
  • Saturday, 27 Jan 2018

Smiling billionaire: A file picture shows Alibaba founder Jack Ma smiling as he waited for trading to start at the New York Stock Exchange on Sept 19, 2014. The concept of dual-shares has gained traction in this part of the world largely due to this listing. — AFP

THE issue of dual-class shares has come closer to home. Just about a week ago, Singapore Exchange Ltd (SGX) said it was jumping on the bandwagon, preparing to allow for the listing of such shares on its stock exchange.

This move comes hot on the heels of a similar decision by Hong Kong last month.

Hence the question now is, should Malaysia follow suit?

The dual-class structure, in a nutshell, allows for firms to issue shares of different classes for different types of shareholders when they get listed.

Under this structure, the class of shares held by company owners typically give them more voting rights, thereby allowing them more control, influence and even higher dividends, compared to other shareholders.

This, in spite of them owning less shares in the company in certain instances.

Such a structure, currently employed on the New York Stock Exchange, is usually favoured by founders of technology and other new-economy firms as well as family-owned businesses.

Speaking to StarBiz earlier this week, renowned value investor Datuk Seri Cheah Cheng Hye believes that Malaysia should introduce this concept - or risk becoming less competitive than its neighbours.

“My argument is that it is unlikely that tech entrepreneurs or even those in advanced biological sciences would now list in Malaysia (following Hong Kong and Singapore’s moves) ...,” the Penang-born Cheah said.

Cheah, a former financial journalist and analyst who now co-manages more than US$16bil in global assets believes that Bursa Malaysia should however create a new board in order for this to materialise.

Based in Hong Kong as the chairman and co-chief investment officer of fund and asset management group Value Partners Group for over two decades now, Cheah pointed out the reason a new board has to be created is because “so much of the Malaysian market is now held by a few agencies. ”

So in order not to disrupt the interests of institutional shareholders who tend to hold large blocks, and have influence on companies, a completely new board should be created to make the whole dual-shares structure more viable here, Cheah who is also a non-executive director of the Hong Kong Exchanges and Clearing Ltd said.

Meanwhile a local market observer thinks that while the concept of dual-class shares in itself is good, it will not be able to be executed successfully here.

“The levels of shareholder protection are just different in the US and over here...,so it’s a different ballgame altogether, ” he says.

Another point to note, says the market observer, is that even under the current shareholder rights regime, there are locally-listed companies which transgress governance rules.

“What more when we have dual-class shares,” he quips.

Alibaba the catalyst

The concept of dual-shares has gained traction in this part of the world largely due to the 2014 US listing of China e-commerce giant Alibaba Group Holding Bhd.

This was communicated by the chief executive of the Hong Kong Stock Exchange (HKEX) himself, Charles Li.

“That transaction (Alibaba) gave us a huge opportunity to review our structure and allowed us to make a series of decisions that led us here today,” Li was quoted as telling the Financial Times (FT) last week.

Alibaba’s decision to list on Wall Street – the biggest in US IPO history – instead of Hong Kong, which was initially a market that it was considering, “compelled a reappraisal of its (HKEX’s) listing process to avoid missing out on the next wave of fast-growing Chinese companies seeking initial public offerings,” the financial paper reported.

According to reports, Hong Kong is expected to allow selected “innovative” companies to list with dual-class structures from the second half of this year. Obviously, there are supporters and there are detractors of dual-shares.

Detractors argue from the point of decreased shareholder voting rights.

Areca Capital CEO and fund manager Danny Wong says: “Many investors may not like it simply because it is unfair.”

“What if the superior share class makes the wrong decision or has bad management style and the other classes have to bear the consequences because they can’t vote or can’t vote enough...?”

Jenn-Hui Tan, director of corporate finance at Fidelity International was quoted by FT as saying that the firm was concerned about the implications for good corporate governance in the Hong Kong market and other markets as a result of the implementation of this structure.

Supporters of dual-class shares meanwhile say that firm owners should be allowed to protect control and influence over the company they set up, no matter what.

Whatever the argument and whether or not Malaysia follows in the footsteps of Hong Kong and Singapore remains to be seen.

Interestingly, this structure is not entirely alien to the Malaysian market.

In the old days, such a concept was called “golden shares”. These shares of certain public listed entities were typically held by a government agency and carried some level of national importance. However, this practice is less frequent in corporate Malaysia today.

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