Reforming the Thai capital market with a proposed "Dual-Class Shares" structure to elevate the Thai capital market to a world-class level.

Currently, the Stock Exchange of Thailand is proposing amendments to capital market laws to make the Thai capital market more attractive and meet international standards. These proposals have been submitted through the Committee for Urgent Legal Reform to the government for implementation, focusing on several aspects of capital market reform.

One key proposal is to consider a dual-class share structure with different voting rights, similar to preferred shares, in order to attract new economy businesses, high-performing family businesses, and startups to easily raise capital on the stock exchange, making it comparable to global capital markets.

Therefore, in this article, I will present case studies from other countries and proposals on this topic for your consideration, temporarily settling on the topic of ethics and family businesses that I mentioned in the previous installment.

Over the past decade, I believe many readers have noticed a particular trend in the global capital markets: the rapid growth of technology and innovative companies such as Google (Alphabet), META, Alibaba, Xiaomi, and Meituan. These companies haven't grown solely because of their innovative business models, but also because they have access to capital markets that are flexible enough to support their business models.

Currently, major global capital markets, including the United States, Hong Kong, and China, have adjusted their regulations to accommodate dual-class share structures in order to attract a large number of large technology companies into their capital markets. Meanwhile, Thailand still adheres to the "one share, one vote" principle under the Public Company Limited Act of 2535, which has remained unchanged for more than 36 years.

And I believe that if no changes are made, the Thai capital market will be at a competitive disadvantage in attracting modern economy companies, including well-performing family businesses and promising technology companies or startups, to raise capital on the Stock Exchange of Thailand. This is because these companies can easily raise capital in foreign markets, and currently, all stock exchanges are competing to find clients to list in their respective countries.

One of the key mechanisms used in global capital markets is to create a dual-class share structure for companies raising capital.

This structure allows companies to raise capital by issuing more than one type of share, with some types of shares having more voting rights than common shares. For example, founder shares may have 10 votes per share, while general investors have only 1 vote per share. These may also be issued as preferred shares with conditions allowing them to be converted into common shares at a later date.

In my view, the dual-class share structure is not just a legal tool in the capital market, but a strategic instrument for the country to attract new economy businesses and world-class technology companies, whether Thai or foreign-owned, into the national economy. It also attracts well-performing family businesses and startups that can raise capital in the Thai capital, ultimately benefiting the overall Thai economy.

I would like to present two case studies, from the United States and Hong Kong, for your consideration. I would also like to ask the readers to study the capital market policies of these two countries and understand why they have this type of stock structure.

Currently, Thailand is at a critical juncture in economic development. The government has announced its goal of developing the country into a major capital market in the region. However, one of the significant obstacles is legal and regulatory limitations that are not aligned with modern business models and hinder Thailand's ability to compete.

As global capital markets compete to attract top companies to list on their stock exchanges, a key question is: should Thailand open the door to a dual-class share structure or remain with its current regulations? And if we choose to open up, how should we design the rules to both attract new businesses while maintaining investor protection standards?

Dual-Class Shares: A New Trend in Global Capital Markets

Looking at the global capital market as a whole, dual-class share structures are becoming increasingly prevalent, particularly among technology and innovative businesses. Several studies have found that between 2017 and 2019, nearly 30% of newly listed companies in the US capital market chose a dual-class share structure to support fundraising and long-term business growth.

This trend reflects a shift in global capital markets, which are increasingly focusing on supporting innovative businesses and long-term growth, particularly those driven by technology and digital platforms. These businesses often require significant capital for expansion but simultaneously need to maintain the strategic vision of their founders.

As a result, many capital markets have adjusted their regulations to accommodate multiple equity structures in order to increase competitiveness and attract technology companies to their markets, whether in the United States or in Asia, such as Hong Kong and China, especially the STAR Market.

In my view, this trend reflects the fact that Dual-Class Shares have become one of the key tools in the global capital market for attracting technology companies and new economy businesses. It helps strike a balance between providing companies with access to public or individual funding and maintaining the long-term vision and direction of the organization by its founders.

In Thailand, this shareholding structure would also incentivize promising family companies with good performance to list on the stock exchange, allowing them to offer a large stake of 30-40% to investors for liquidity without fear of a hostile takeover later.

Case study of the United States.

The case of several global technology companies clearly reflects the role of this structure. For example, Meta Platforms, where founder Mark Zuckerberg holds Class B shares with 10 voting rights per share, while general investors hold Class A shares with only 1 voting right per share. Although Zuckerberg holds only about 13-14% of the company's shares, this structure allows him to still control approximately 60% of the company's total voting power.

Similarly, Alphabet, Google's parent company, uses a multi-tiered stock structure. Class B shares, with 10 voting rights per share, are primarily held by founders Larry Page and Sergey Brin, giving the founders control over more than half of the company's voting power despite the large number of minority shareholders.

These technology company case studies illustrate how dual-class share structures are designed to allow companies to raise capital from the public or individual investors while maintaining the founders' long-term vision and retaining control over key aspects of the company's operations.

Case study from Hong Kong: Capital market reforms to attract [something]. Tech Companies

Another interesting case study is the Hong Kong Stock Exchange (HKEX).

Hong Kong, like Thailand, previously strictly adhered to the "one share, one vote" principle. However, a significant event in 2013, when Alibaba chose to hold its IPO in New York instead of Hong Kong because Hong Kong did not allow dual-class share structures, became a crucial wake-up call for the Hong Kong capital market.

Following a major rule change on the Hong Kong Stock Exchange in 2018 to allow companies with Weighted Voting Rights (WVR) structures to list, several large technology companies have chosen to enter the Hong Kong market. Key examples include Xiaomi, which was the first company to use such a structure to list in 2018, and Meituan, a large Chinese digital services platform, which also listed in the same year with a Weighted Voting Rights (WVR) share structure.

Subsequently, the Hong Kong Stock Exchange was able to attract many more technology companies and digital platforms to list using a similar structure, including Kuaishou Technology, a Chinese short-video platform, as well as other large technology companies that chose Hong Kong as a base for fundraising.

It is further interesting to note that although Hong Kong has allowed for a Weighted Voting Rights (WVR) structure since 2018, adjustments to the capital market regulations continue. Most recently, the Hong Kong Stock Exchange (HKEX) proposed lowering the minimum market capitalization threshold for companies seeking to list under this structure from approximately HK$10 billion to HK$6 billion in 2026, along with reducing the minimum revenue requirement, in order to provide greater flexibility for technology companies and high-growth companies to access the capital market.

The objective of this revised criteria is to attract more technology and high-growth companies to raise capital in Hong Kong, in order to enhance its competitiveness against major capital markets such as the United States, Singapore, and the United Kingdom. It also aims to incentivize Chinese companies that have previously been listed overseas to return to the Hong Kong market, thereby increasing the number of new listings and improving the long-term liquidity of the capital market.

This trend reflects how regulatory adjustments to accommodate such a stock structure have significantly enhanced the competitiveness of Hong Kong's capital market and enabled it to attract New Economy companies back into its capital market. This must be considered one of the most significant capital market reforms in Hong Kong in decades.

In my view, the lessons from Hong Kong clearly show that if the Thai capital market doesn't adapt, it may lose promising technology companies or startups to other capital markets.

Opportunities for Thailand

Looking back at Thailand, I believe the Dual-Class Shares structure could play a significant role in developing the supply side of the Thai capital market, particularly in attracting companies from four key sectors to raise capital in the Thai capital market:

1. New Economy Businesses

Many technology and digital platform companies require significant capital to expand regionally or globally. At the same time, founders often want to maintain the organization's strategic vision. A Dual-Class Shares structure allows companies to raise capital from the capital markets while retaining direction from the founders.

2. Family Business

Thailand has many large family businesses with significant growth potential, but some owners are hesitant to list on the stock exchange due to concerns about losing control of the business. Allowing for a dual-class share structure could be an option that helps these businesses raise capital from the capital market and sell a larger number of shares to retail investors for liquidity, while simultaneously maintaining strategic control or ownership.

3. Privatization of state enterprises.

Another point I find interesting is the use of a Dual-Class Shares structure as a tool for privatizing state-owned enterprises. This allows the government to open up opportunities for public investment through the capital market while simultaneously maintaining oversight of strategically important businesses for the country, without needing to hold more than 50% of the shares, which would automatically classify them as state-owned enterprises under relevant state enterprise governance laws.

This creates limitations in management and business agility, and unduly removes excessive criminal liability for directors, leading state enterprise boards to hesitate in making decisions that would drive company growth for fear of lawsuits if those decisions result in losses or damages. Most state enterprise boards therefore choose to remain passive in making important decisions, believing it to be "safer."

Unlocking the potential of government shares and shares of high-performing state-owned enterprises such as PTT and Airports of Thailand to inject liquidity into the Thai capital market would not only provide the government with funds, but also give these organizations the freedom to conduct their business without legal restrictions.

4. Startup businesses

Furthermore, dual-class share structures can support startups growing into large companies in many countries. Many technology companies choose this type of share structure when going public, allowing founders to retain control over the business direction even with a large number of institutional and public shareholders.

In my opinion, if Thailand wants to seriously foster the growth of its startup and technology ecosystem, allowing for a dual-class share structure could be another mechanism to incentivize these companies to list on the Thai capital market instead of overseas markets.

Legal proposals to support this. Dual-Class Shares in Thailand

Implementing a Dual-Class Shares structure in Thailand requires amendments to several laws, including:

1. Public Limited Company Act, B.E. 2535 (1992) Key proposals include:

– Amend Section 102 to allow companies to issue shares with different voting rights, where more than one share has one vote. (Currently, the law allows companies to issue preferred shares with lower voting rights than common shares, but does not yet allow for shares with higher voting rights.)

– Paving the way for Super Voting Rights shares.

Furthermore, to encourage foreign companies to register in Thailand, there are proposals to amend Section 67 regarding the number of directors who must reside in Thailand, in order to increase flexibility for foreign companies seeking to use Thailand as a base for fundraising. This also includes revising the regulations for foreign companies raising capital in the Thai market, which would involve two types of share structures.

2. The Securities and Exchange Act. Additional guidelines should be established, such as:

– Disclosure of information regarding the shareholding structure.

– Governance requirements

– Measures to protect minority shareholders.

– Facilitating the raising of capital by foreign companies in Thailand and providing easier disclosure of information about foreign companies intending to list on the Thai capital market.

3. Regulations of the Stock Exchange of Thailand. The Stock Exchange can establish specific rules for listed companies using a Dual-Class Shares structure, such as:

– Limiting the maximum proportion of voting rights.

– Defining the qualifications of shareholders with special voting rights.

– Or the determination of the types of shares of foreign companies that will raise funds in Thailand.

However, while dual-class shares offer several advantages in supporting new economy businesses, this mechanism is also a widely debated topic in academic circles and global capital markets, particularly in the dimension of corporate governance.

One of the key concerns is that the Dual-Class Shares structure could create a situation where shareholders...
Some shareholders have voting rights that exceed their shareholding proportion; that is, shareholders with high voting rights (Super Voting Shares) may hold only a small percentage of the company's economic shares, but can still control the company's decision-making.

Some research suggests that companies using a dual-class share structure may face more resistance from minority shareholders than companies using the "one share, one vote" principle, particularly on issues related to management transparency and corporate governance.

Therefore, if Thailand were to consider allowing a Dual-Class Shares structure...
Therefore, I believe that the most important issue is not simply allowing such a structure, but rather...
"Designing appropriate investor protection safeguards" is crucial to striking a balance between attracting technology companies to the capital market and maintaining good governance standards in the Thai capital market.

Design guidelines Safeguards to support good corporate governance in Thailand.

Based on my study of approaches to international capital markets and policy proposals currently under consideration by the subcommittee on legal reform regarding capital market regulations, I believe that investor protection measures may comprise several key components, as follows:

1. Defining the qualifications of companies that can utilize a Dual-Class Shares structure.

Companies wishing to use the Dual-Class Shares structure must meet specific criteria, such as being listed on the stock exchange or having a business type aligned with targeted sectors like digital technology, medical innovation, deep tech, or industries with high levels of research and development investment (or those receiving investment promotion from the BOI), and participating in an IPO program with the Stock Exchange of Thailand.

This approach ensures that such structures are applied to businesses that are suitable for them, reducing the risk of their application to generic businesses that don't require such a structured approach to dominate certain sectors, such as land or real estate.

2. Setting a ceiling on voting rights.

Another measure is to set a voting rights cap for high-voting stocks to prevent excessive concentration of power. For example, limiting high-voting stocks to a maximum of 10 times the voting rights of common stock is an approach adopted by many capital markets.

Furthermore, it may be stipulated that common shareholders must collectively hold voting rights representing at least one-third of the total voting power in order to maintain a balance of power within the company.

3. Sunset Provision

Another measure widely accepted in international capital markets is the Sunset Provision, which limits the validity period of special voting rights.

For example, exclusive voting rights may expire due to certain events, such as the death of a founder, resignation from a management position, after the company has been in business for a certain period following its listing on the stock exchange, or when BOI tax benefits expire.

Measures like this would allow for a two-tiered shareholding structure to support the company's growth in the initial stages, but in the long term, it could gradually revert to the "one share, one vote" principle, although this might take a long time, such as 8-10 years.

4. Transparent disclosure of information.

Another important element is the requirement for companies to clearly disclose information about their shareholding structure and voting rights, such as:

– The structure of each type of stock.

– Reasons for using a two-type share structure.

– Potential risks to minority shareholders.

– Conditions for the termination of special voting rights.

Full disclosure helps investors understand the rights structure of each type of stock, assess risks appropriately, and make investment decisions based on transparent information.

Summary: Opportunities and Challenges for Reforming the Thai Capital Market

In a world where global capital markets are competing to attract technology companies and innovative businesses, many countries have adjusted regulations to make capital markets more flexible. Dual-Class Shares structures have therefore become one tool being used to support the growth of the modern economy, while also requiring appropriate regulatory measures to maintain a balance between innovation and investor protection.

For Thailand, amending related laws to accommodate such a structure requires amending several laws simultaneously. This should involve considering amendments in the form of an Omnibus Law, as is the approach currently being prepared by the Stock Exchange of Thailand and the Committee for Urgent Legal Reform for submission to the government for consideration.

Ultimately, we may need to question whether the rules and regulations of the Thai capital market today are still appropriate for the modern global economy. Dual-Class Shares may not be the complete answer, but I believe that opening up to a wider range of financial instruments could help the Thai capital market compete better on the global stage and may be another important step in reforming the Thai capital market for future sustainability.