Dual-Class Shareholdings Will Lure Many to IPO in Hong Kong
Qian Tongxin
/SOURCE : Yicai
Dual-Class Shareholdings Will Lure Many to IPO in Hong Kong

(Yicai Global) Jan. 23 -- After Hong Kong's stock exchange is poised to allow 'dual-class share structures high-tech companies to list in Hong Kong,' more Chinese companies will choose to list in mainland China or Hong Kong in the future than in the US," Tong Shihao, managing partner of GGV Capital, a venture capital firm focused on multi-stage investments in the US and China, told Yicai Global in a recent interview.

"Chinese investors better understand Chinese companies and the listing and exit mechanisms of domestic exchanges. However, to wait in line to list on the domestic A-share market take some time." Hong Kong's capital markets have begun to pay more attention to the mainland's high-tech enterprises and even expect to attract them to go public in Hong Kong by improving its legal rules, Tong said.

HKEX was once the preferred place for global companies' IPOs. However, in the past two years, as Hong Kong Stock Exchange has been reluctant to accept the listing of mainland technology companies with dual-class share structures, technology firms such as Alibaba Group Holding Ltd. [NYSE:BABA] turned to listing in the US, but with HKEX confirming this will change this year, it may be possible to attract some Chinese tech firms that planned to go public in the US.

The 'dual class shareholdings' means that an enterprise may issue two types of shares with different voting rights to ensure that after its listing, founders and management can still obtain greater voting rights to guarantee them decision-making power over the listed company.

After HKEX announced the reform of its listing system allowing for the listing of shares with different rights in Hong Kong, Alibaba founder Jack Ma said in Hong Kong: "Alibaba is seriously considering listing in Hong Kong," but offered no further details.

Among many Chinese technology companies that are expected to IPO this year, the most remarkable one is handset maker Xiaomi Technology Co. Xiaomi's IPO scale is currently widely expected to reach more than USD100 billion and it is most likely to plump for a Hong Kong listing. As Xiaomi's early investor, GGV will get a very lucrative return on Xiaomi's IPO.

At present, GGV has invested a total of more than 300 companies, with Chinese and the US firms each accounting for half. Chinese startups are more aggressive than their US peers, in Tong's view.

"Chinese enterprises are more ambitious with stronger desire and determination to make a platform, while US start-ups are more geared to achieving some ideal. As to whether a platform can be made, or how much money can be earned in the future, this is not their biggest goal. Thus, when many US start-ups reach a valuation of some USD300 million to USD400 million, they will consider selling them for the next venture, but Chinese start-ups want it to continue to be bigger and stronger. This can be seen from a historical comparison of Didi and Uber," Tong said.

On the similarities and differences between the two big Internet giants Alibaba and Tencent Holdings Ltd. [HK:0700] in China, Tong noted: "Ten years ago, Chinese start-ups were still worried about being squeezed by the two giants. Now they are getting more investment from them. As Alibaba is a trading platform, it has a greater desire to acquire a company, while Tencent is mainly based on user flow and infrastructure, so the purpose of strategic investment is stronger."

"There is a good chance that China's Internet giants will reach trillions of dollars in market capitalization as the internet in China's market has far outweighed the rest of the world. Chinese internet companies go offline faster than companies go online," Tong added.

Follow Yicai Global on
Keywords: IPO , Hong Kong , Venture Capital , GGV , Tech Startups