HKEX Says Agreement Reached on Dual-Class Shares in Link

(Bloomberg) -- Chinese investors will eventually be able to buy stocks with weighted-voting rights, such as Xiaomi Corp., through links with Hong Kong, the city’s stock exchange said in a statement, days after China’s bourses barred such companies from the cross-border trading program.

Hong Kong Exchanges & Clearing Ltd. said it reached an agreement with the Shanghai and Shenzhen bourses on Tuesday to set up a working group to form rules on the new adjustment as soon as possible. It didn’t provide details on the timing.

The decision marks a partial victory for HKEX Chief Executive Officer Charles Li, who flew to Beijing after Chinese exchanges surprised the market on Saturday when they said they would exclude companies like Xiaomi from the stock connect because investors didn’t understand the risks associated with the new products. Permitting weighted-voting structures was the centerpiece of a years-long struggle to attract technology listings to Hong Kong.

The Shanghai Stock Exchange couldn’t immediately comment on the matter.

The decision makes sense for both the Hong Kong and China markets, as otherwise it would be harder for companies that can’t list in China to raise funds overseas, said Banny Lam, CEB International Investment Corp. head of research.

Shares in Xiaomi, which fell as much as 9.6 percent on Monday, rallied as much as 6.2 percent after the new arrangement was announced. The stock closed up 3.1 percent on Wednesday, while HKEX shares gained 0.6 percent.

It could take six-to-12 months to develop a plan to allow shares with weighted-voted rights in the stock connect, said Ronald Wan, CEO at Partners Capital International Ltd. in Hong Kong.

“The key is to protect mainland investors’ rights when they buy shares such as Xiaomi,” Wan said. “That requires legislation in China, but as a temporary solution, the authorities and HKEX may require extra risk-warning statement from Hong Kong-listed weighted-voting rights firms, and ask mainland investors to sign a statement that they understand the risk.”

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