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Xiaomi vindicates HK dual class decision – but at a cost

Listing is a great result, but the rule change it required dilutes good governance.


Lei Jun, co-founder of Xiaomi

May brought welcome news for Hong Kong.

Xiaomi, one of the world’s most successful smartphone manufacturers and China’s closest answer to Apple, will conduct its IPO on the city’s exchange, potentially raising about $10 billion.

For the Hong Kong stock exchange, this is vindication of a rule change specifically designed to capture tech listings like Xiaomi and a direct response to having missed out on the biggest, Alibaba.

The new rules allow for a weighted voting rights structure, also known as dual-class shares. In these deals, founding shareholders have greater power even if they are minority shareholders. The shares held by co-founders Lei Jun and Lin Bin will carry 10 votes each, while everyone else will get one vote per share.

HKEx did a lot of soul-searching before changing the rules and will feel that the Xiaomi news justifies the decision. The news that China Tower will also seek to raise about $10 billion in Hong Kong at roughly the same time has boosted the feel-good factor (despite the fact it’s not greatly convenient for Xiaomi and will make for a hell of a busy summer for Goldman Sachs, which is on both deals).

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