As regulatory pressure on Chinese corporations increases on both sides of the Pacific, Alibaba Group Holding Ltd. plans to continue a primary listing of its stock in Hong Kong in order to hedge its bets. The action is being taken as Beijing and Washington continue to disagree about the audits of Chinese businesses with US listings.
If the two countries cannot come to an agreement for U.S. regulators to inspect the audit documents of Chinese enterprises, more than 250 Chinese companies, including Alibaba, risk mass delistings from the United States.
The new primary listing, which Alibaba anticipates completing by the end of the year, will also open the door for Alibaba’s participation in the mainland China-Hong Kong Stock Connect trading link, making its equities available to investors there.
The Chinese e-commerce giant will continue to be listed on the New York Stock Exchange, where it started in 2014 with the largest IPO ever. In 2019, Alibaba received a secondary listing in Hong Kong. The New York listing status determines whether Hong Kong will list, and the shares traded on the two markets are completely interchangeable. Shares of Alibaba are available in both markets for investors to own.
As with other dual-listed Chinese IT stocks in Hong Kong, trading in Alibaba shares still primarily takes place in New York. Alibaba’s average daily trading volume in Hong Kong for the six months ending June 30 was roughly $700 million, compared to about $3.2 billion in the United States.
According to Robin Zhu, an analyst at Sanford C. Bernstein, the initial listing in Hong Kong and subsequent inclusion in the stock trading link with mainland China could result in at least $21 billion in fresh investor inflows into Alibaba shares.
According to Mr. Zhu, investors from the Chinese mainland presently own between 7 and 10 percent of the shares of the tech heavyweights Tencent Holdings Ltd., Meituan, and Kuaishou Technology.
Many Chinese firms that are listed in the United States have placed their shares in Hong Kong as the possibility of delisting in the country grows. In the event that American regulators are unable to view Chinese companies’ audit paperwork for three consecutive years, they may be banned from trading on American markets. The deadline will expire in 2024.
The majority of those businesses entered Hong Kong through secondary listings, which are easier to keep up because Hong Kong frequently waives its transparency and corporate governance requirements for those listings. A priority listing would necessitate stricter adherence.
A few businesses chose the dual-primary listing path in Hong Kong to gain access to investors from mainland China, notably electric vehicle manufacturer Xpeng Inc.
image credit : shutterstock
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