Alibaba aims to add a primary listing in Hong Kong to its New York presence, seeking mainland Chinese investors as the first major corporation to take advantage of a regulation change in the financial center to attract high-tech Chinese companies.
The decision, which was revealed on Tuesday, comes as Washington and Beijing intensify scrutiny over Chinese businesses’ listings, and after a regulatory crackdown in China landed Alibaba (NYSE:BABA) with a $2.8 billion fine and derailed the initial public offering (IPO) of its subsidiary Ant Group.
It also occurs against the backdrop of an audit dispute between China and the United States, which threatens to exclude hundreds of Chinese firms from the New York Stock Exchange.
According to analysts, the modification should facilitate mainland Chinese investors’ access to the shares via the Stock Connect, a connection to the Hong Kong stock exchange. The Stock Connect deal does not permit secondary listings in Hong Kong, such as Alibaba’s present listing.
The stock price increased 4.8% at the end of trading, while the Hong Kong benchmark rose 1.7%.
“Being in Stock Connect will make it easier for mainland Chinese investors to purchase the shares in the future, therefore investors are eager to purchase the stock in Hong Kong now,” says Louis Tse, managing director of Wealthy Securities.
Alibaba anticipates the primary listing to be completed by the end of 2022. Alibaba has been present on the Hong Kong exchange since 2019 with a secondary listing. Daniel Zhang, chief executive officer, stated that the dual listing will expand and diversify the investment base.
The decision comes after the Hong Kong Stock Exchange (HKEX) modified its regulations in January to allow “innovative” Chinese firms with weighted voting rights or variable interest entities (VIE) to conduct dual main listings in the city. These companies operate internet or other high-tech businesses.
Under a VIE structure, a Chinese corporation establishes an offshore organization for overseas listing purposes, allowing international investors to purchase shares.
Alibaba’s CEO, Zhang, said in a statement, “Hong Kong is also the launching pad for Alibaba’s globalization plan, and we are completely confident in China’s economy and future.”
SWEEPING CRACKDOWN
Alibaba went public on the New York Stock Exchange in September 2014, marking the biggest IPO in history at the time.
Since 2020, the share price of the firm has plummeted in both markets due to Beijing’s massive regulatory campaign against Chinese tech companies.
Simultaneously, U.S. officials have increased their scrutiny of Chinese corporations listed in New York, seeking greater openness.
A primary emphasis of China’s crackdown, despite its vast breadth, has been officials’ efforts to improve monitoring of public offerings.
Just after Didi Global’s initial public offering in New York last year, Chinese authorities initiated an investigation against the company, citing data privacy concerns.
In light of the company’s subsequent delisting and plans to list in Hong Kong, observers conclude that the investigation was motivated by Beijing’s desire for data-rich corporations to list locally.
ANT GROUP DECOUPLING
Late in 2020, officials unexpectedly canceled Ant Group’s proposed $37 billion IPO in Hong Kong and Shanghai, placing Alibaba in a similar position.
Concurrently with the news of its dual main listing, Alibaba disclosed in its annual financial report on Tuesday that numerous Ant Group executives had resigned from their positions in the Alibaba Partnership, the e-commerce giant‘s highest decision-making body.
The departures are part of a gradual decoupling of Alibaba’s financial section, precipitated by the disastrous initial public offering.
Justin Tang, head of Asian research at financial advisor United First Partners in Singapore, stated that Alibaba’s move to potentially join Stock Connect will increase the company’s share price.
“This will be the template for corporations seeking to hedge against the regulatory risk that Chinese companies face on U.S. exchanges,” he added.
In order to switch to a dual primary listing, the HKEX stipulated that companies must have a good track record of at least two full financial years listed overseas, as well as a capitalisation of at least HK$40 billion ($5.10 billion) or a market value of at least HK$10 billion plus revenue of at least HK$1 billion for the most recent financial year.
