Dual-Class Shares Listing on Bursa Malaysia – An Entry into a New Era

The Prime Minister and Finance Minister of Malaysia, Datuk Seri Anwar Ibrahim has in the highly anticipated revised Budget 2023 tabled on 24 February 2023 revealed the Malaysian Government’s plan to allow the issuance and listing of dual-class shares on Bursa Malaysia. This is part of the Malaysian Government’s effort to encourage the listing of local high growth technology on Bursa Malaysia.

The Securities Commission Malaysia (SC) welcomes this measure announced by the Malaysian Government. SC’s Chairman, Dato’ Seri Dr. Awang Adek Hussin has stated that “allowing dual-class share structures will also help high-growth, innovative companies to the Malaysian capital market, allowing investors access to more diversified investment opportunities”.

Our Asian neighbours, Hong Kong, Shanghai, Singapore and most recently Indonesia have permitted companies to list with a DCS structure. At last, with this latest announcement, Malaysia will soon be joining the ranks.

Dual-class share structure (“DCS structure”) may or may not be a foreign term to many. The fundamentals of the dual-class share structure does indeed offend the “one-vote, one-share” principal. Under a DCS structure, certain shareholders are given voting shares that are disproportionate to their shareholding, i.e. shares in one class will carry one vote (“OV shares”), while shares in another class will carry multiple votes (“MV shares”). Holders of MV shares are typically the company’s founders and their families, or other key executives. An example close to home is the debut of Grab Holdings on Nasdaq. Filing reports revealed that as a result of Grab’s DCS structure, co-founder Anthony Tan will have 60.4% voting rights even though he owns just 2.2% of Grab Holdings. Meanwhile, SoftBank Vision Fund, which owned 18.6% of ordinary shares in Grab Holdings, commanded just 7.6% of the voting power.

Singapore’s decision back in 2017 to allow the listing of dual-class shares on its stock exchange sparked a debate – whether or not Malaysia should follow suit. There were even misleading reports which has caused confusion on Bursa Malaysia’s position. In August 2017, Bursa Malaysia had issued a statement that the listing of dual-class shares on the local bourse will not be taking place anytime soon and this has caused Malaysia’s Minority Shareholder Watchdog Group (MSWG) to be “hugely relieved”.

The DCS structure have their proponents and opponents. As Financial Times columnist Andrew Hill puts it, “the advantage of a dual-class share structure is that it protects entrepreneurial management from the demands of shareholders”. Whilst those sitting on the other side of the fence will say otherwise. There is also the risk that the management of companies with their disproportionate voting rights under the DCS structure may not act in the best interest of all shareholders, resulting in corporate governance concerns and inadequate investor protection.

Regulators of exchanges with the DCS structure has put in place frameworks and guidelines which offers safeguards and restrictions to protect minority shareholders. Amongst the safeguards that put in place is to limit the voting rights of MV shares to a maximum of 10 votes per share – this has been adopted by both the Hong Kong Stock Exchange (“HKEx”) and the Singapore Exchange Securities Trading Limited (“SGX-ST”) and issuers must set out the voting rights of its MV shares clearly in its constitution. SGX-ST also prohibits issuers from undertaking equity fundraising by issuing MV shares post-listing, except in certain permitted corporate exercises. Over in Hong Kong, the HKEx has prescribed that certain key matters, including the appointment or removal of an independent non-executive director, will still be decided on a one share, one vote basis.

The announcement on the DCS structure is a welcome development and hopefully the vision that the Malaysian Government has in mind with the adoption of this DCS structure will come to fruition.

As at the date of publication of this update, neither Bursa Malaysia nor SC has made further announcements regarding its approach on the implementation of the DCS structure in Malaysia. We will continue to monitor developments and provide updates.