The manager of Norway’s NOK7.7trn (€826bn) sovereign wealth fund has warned Hong Kong’s plan for a new market for tech startups and new Chinese companies lacks safeguards against weakening investor protection.
In a letter to the Hong Kong Stock Exchange, Norges Bank Investment Management (NBIM) took issue with the idea of having different levels of voting rights for different shares in Chinese firms.
In June, Hong Kong Exchanges and Clearing (HKEX) proposed several changes to its listing framework, including the addition of a third board to attract “new economy” technology firms.
In the letter, NBIM’s Petter Johnsen, CIO for equities, and senior analyst Peter Gjessing said: “We would have liked to see a more balanced consideration of the interests of all the stakeholders in the listing environment.”
The pair noted that the concept paper published by the exchange was not yet a fully-developed proposal, but bemoaned its one-sided approach.
“Considerable weight is given to the interests of the exchange in attracting the listing of certain issuers, compared to the interests of long-term investors in supplying capital to issuers,” they said.
NBIM acknowledged it could be appropriate to relax some eligibility criteria at least in the early stages of a newly listed company’s life cycle, and supported motivating businesses to go public.
“Our main concern is with the suggested introduction of Weighted Voting Rights (WVR) on the new board,” the letter said. “This would allow issuers to provide unequal voting rights to shareholders of different share classes.”
NBIM opposed a similar proposal three years ago, recommending that the exchange stick to the long-standing rule of banning differentiated voting rights.
“We recognise that the exchange in its current concept paper proposes to limit the introduction of WVR to a new board, but in our view this does not provide sufficient safeguards against the weakening of investor protection,” Johnsen and Gjessing said.
In the long term, issuers were likely to be willing to adapt to higher standards of corporate governance if incentivised by the listing framework, they argued.
“We believe the Hong Kong market has an opportunity to compete as a stock exchange with high-quality market standards,” they said.
The criticism from one of the world’s largest investors comes as China is attempting to open up its stock and bond markets. In June, MSCI added A-shares – equities listed on the Chinese mainland – to its indices, effective next year.
Last month China’s central bank opened up its “bond connect” service, allowing investors to trade Chinese fixed income via Hong Kong.