Me too! Bursa Malaysia joins dual-class rush

The Malaysian bourse is following Singapore and Hong Kong in considering studying unconventional share structures – despite caution from index providers.
Bursa Malaysia building
Bursa Malaysia building

Bursa Malaysia can’t resist joining the party – or the mess, depending on how you look at it.

The Malaysian bourse is considering whether to allow dual class shareholding structures, a spokesperson confirmed to FinanceAsia on Wednesday. In a further statement, issued more than 24 hours later by another spokesperson, the bourse clarified that it had no immediate plans to study dual-class shareholding, but was keeping "abreast of the developments in the region" which included the "possibility of conducting a study to better understand the debate centering around dual class shares".

"In any event, any policy change in the listing framework in the Malaysian capital market is subject to the Securities Commission Malaysia’s approval," the second spokesman added.

Such structures – popular with the kind of hip technology start-ups stock markets are fighting hard to attract for initial public offerings – are typically designed to allow company founders or directors to retain control after an IPO.

If it goes ahead with a study, Malaysia's bourse would follow its Asian peers Singapore and Hong Kong in taking a close look at tweaking the standard “one share, one vote” corporate governance set-up in Asia’s financial markets.

Singapore Exchange (SGX) in February kicked off a public consultation to allow companies to use dual-class structures in their primary listings, and in July stepped up its lobbying efforts by telling the public that its secondary listing framework already allowed dual-class share companies.

Hong Kong Exchanges and Clearing (HKEx) also published a consultation paper in June , in which it proposed to set up a brand new board – separate from its main board and growth enterprise market (GEM) – to cater to firms with dual-class shares.

The issue is arguably the most controversial in today’s financial markets, with regulators from the US and UK to Hong Kong and Singapore trying to create or escalate non-conventional shareholding structures. On the other hand, index companies argue strongly that such structures make it harder for shareholders to keep company bosses accountable.

For its part, Bursa Malaysia's decision to look at dual-class shareholding, which was first reported by Bloomberg, came shortly after two of the world’s biggest index providers told the regulators they didn’t like what was now happening.

FTSE Russell and S&P Dow Jones Indices recently blocked some companies with dual class share structures as investors become increasingly uncomfortable with them.

S&P Dow Jones Indices on July 31 banned companies with multi-class shares – including dual class shares – from joining US indexes including the S&P 500. However, it did leave a grandfather clause that spares behemoths such as Google's holding company Alphabet and Berkshire Hathaway.

FTSE Russell, a unit of London Stock Exchange Group, in late July threatened to bar 30-plus companies from its indexes unless they raised the percentage of voting rights given to public investors.

The Asian Corporate Governance Association (ACGA), a fierce critic of dual-class shares, questioned “whether Singapore-based investors would be able to effectively access the investor protection mechanisms in the primary markets of dual class share firms” the day SGX clarified that its secondary listing regime allowed for dual-class shares. And much like Singapore, Malaysia is already facing criticism over shareholder protections.

For example, questions have been raised over whether Malaysia's standards for disclosure of share subscribers in private placements are sufficient. What's more, companies can hide behind a British Virgin Islands registration, given the loose requirements on disclosure of beneficial ownership.

If Bursa Malaysia fails to address these issues, while blindly following what its peers are doing, it is throwing itself into a race to the bottom of financial markets.

This story has been updated with additional information from Bursa Malaysia, provided after its initial publication.

¬ Haymarket Media Limited. All rights reserved.
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