Blackrock released its response on HKEX’s Corporate Weighted Voting Rights Consultation

30 May, 2020 04:05
source: Singularity Financial

Singularity Financial Hong Kong May 30, 2020 – by David Lee

In response to the Consultation Paper on Corporate WVR (Weighted Voting Rights) Beneficiaries, issued by the Hong Kong Exchanges and Clearing Limited on 31st January 2020, BlackRock, managing US$6.5 trillion as at 31st March 2020, released its comment letterdated on May 13, 2020, through the company’s website, and said NO to the proposed updates of existing WVR regime by stating that BlackRock firmly believes in “one-share, one-vote” (OSOV) as the foundation for protecting the rights of all shareholders on an equitable basis.

Blackrock’s letter, signed by both APAC Head of Investment Stewardship Amar Gill and APAC Head of Public Policy Winnie Pun, viewed the proposal fundamentally violating the OSOV principle, the bedrock for equitable voting power for all shareholders.

“Allowing weighted voting rights (WVR) violates the fundamental corporate governance principle of proportionality. Granting WVR to corporates in addition to individuals as proposed in the Consultation exacerbates the concerns by introducing additional misalignment risks. In principle, we disagree with WVR regimes and the extension proposed for the Exchange to enable corporate entities to benefit from disproportionate voting rights. We view it as unnecessary; given a scheme as complex and challenging to regulate as proposed in the Consultation, the mitigation of disenfranchisement risks is unlikely to be fail-safe.”

What is HKSE’s updated proposals for Corporate Beneficiaries Of Weighted Voting Rights?

‘Weighted voting rights’ structure (WVR) refers to the voting power attached to a share of a particular class that is greater or superior to the voting power attached to an ordinary share or other governance right or arrangement disproportionate to the beneficiary’s economic interest in the equity securities of the issuer.

Given the controversy surrounding an “evergreen” WVR structure peculiar to corporate WVR, HKSE proposes more investor safeguards including a compulsory “sunset” provision so that the WVR will automatically lapse after a period of not more than 10 years. Below is a comparison between the existing limitations imposed on Individual WVR Beneficiaries and the proposal on Corporate WVR Beneficiaries.

Existing Limitations on Individual WVR Beneficiaries Proposed Limitations on Corporate WVR Beneficiaries
WVR voting power ≤ 10 times of ordinary shares ≤ Five times of ordinary shares (a maximum of 68% voting power at a general meeting for a holder of 30% economic interest (below)
Economic interest in total issued share capital Collectively a minimum of at least 10% and a maximum of not more than 50% 10 percent or more for at least two financial years prior to listing; and at least 30 percent at time of listing of the WVR applicant (and thereafter on an on-going basis)
Contribution to listing applicant Has been materially responsible for the business growth and has an active role within the business Leader of a recognisable ecosystem which has materially contributed to and shaped the business growth of the WVR applicant
Qualification/ongoing requirement  A director at the time of listing and remains so thereafter
  1. It has a primary listing on HKSE or a Qualifying Exchange with a minimum market capitalisation of HK$200 billion at time of listing of the WVR applicant;
  2. Its corporate representative sits on the board of directors of the WVR issuer;
  3. It complies with 30% minimum economic interest requirement; and
  4. The WVR issuer remains in the ecosystem with access to information and technologies shared within the system
Lapse of WVR
  1. If beneficiary dies, ceases to be a director, or deemed incapacitated or no longer meet directors’ requirements (e.g., convicted of an offence involving fraud, disqualified, etc.);
  2. Upon transfer of WVR shares
  1. It no longer remains listed on the HKSE or a Qualifying Exchange;
  2. It no longer has a corporate representative on the board of directors of the WVR issuer for more than 30 days; or its representative is deemed incapacitated or no longer meet directors’ requirements; or that itself or its representative has been convicted of an offence involving fraud or dishonesty;
  3. Its economic interest falls below 30%;
  4. If, based on the review(s) by the Corporate Governance Committee of the WVR issuer, the corporate’s contribution to the issuer is substantially terminated or materially disrupted or suspended for a period exceeding 12 months
Sunset provision None Must have a time-defined “sunset” period of not more than ten years for the WVR of a corporate WVR beneficiary, which may then be renewed for successive periods of not more than five years with the approval of independent shareholders

 

You can view the Corporate WVR Consultation on the HKEX website. The consultation period ends on 31 May 2020. To review itemized responses by Blackrock on HKSE’s WVR proposals listed above, please click this link.