A man walks past the Alibaba Group office building in Beijing, China August 9, 2021. REUTERS/Tingshu Wang
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- Expects to add a primary listing in HK by the end of 2022, maintaining listing on NYSE
- Hong Kong stocks up 5%; move will diversify the investor base -CEO
- Seen to improve mainland China investors’ access to Alibaba shares
- In line with the move, Ant executives are stepping back from the Alibaba partnership
SHANGHAI, July 26 (Reuters) – Alibaba (9988.HK) will apply for an initial listing in Hong Kong and maintain its US listing, the first major company to benefit from a rule change allowing Chinese high-tech companies to have two-tier shares Target primary listings in Hong Kong.
The e-commerce giant’s move, announced on Tuesday, comes as both Washington and Beijing are scrutinizing listings of Chinese companies and after a devastating crackdown by regulators in China fined Alibaba $2.8 billion and has failed an initial public offering (IPO) of its subsidiary Ant.
Alibaba’s shares rose 4% at the start of Hong Kong trading as analysts said the change should give investors in mainland China easier access to the shares via a link to the Hong Kong stock exchange, known as the Stock Connect. By 0303 GMT, shares were up 5% while the Hong Kong benchmark (.HSI) was up 1.2%.
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Alibaba has had a secondary listing on the Hong Kong Stock Exchange since 2019 and expects the initial listing to be completed by the end of 2022. Chief Executive Daniel Zhang said the dual listing would foster a “broader and more diversified investor base.”
The move comes after the Hong Kong Stock Exchange (HKEX) changed its rules in January to allow “innovative” Chinese companies – running an internet or other high-tech business – with weighted voting rights or Variable Interest Entities (VIE) to conduct dual Transactions allow primary listings in the city.
Under a VIE structure, a Chinese company establishes an offshore entity for overseas listing purposes, allowing foreign investors to buy into the stock.
“Hong Kong is also the launch pad for Alibaba’s globalization strategy, and we have full confidence in China’s economy and future,” Alibaba CEO Zhang said in a statement.
RECOVERY
Alibaba was listed on the New York Stock Exchange in September 2014, marking what was then the largest IPO in history.
Since 2020, the company’s share price has plummeted in both markets as a sweeping regulatory crackdown has hit Beijing’s Chinese tech companies.
At the same time, US regulators have stepped up scrutiny of the accounts of Chinese companies listed in New York, calling for more transparency.
While this is far-reaching, a key focus of China’s crackdown has been regulators’ efforts to expand oversight of public offerings.
Last year, Chinese authorities launched an investigation into ride-hailing giant Didi Chuxing shortly after it went public in New York, citing privacy concerns.
The company was later delisted and began preparations for a Hong Kong listing, leading analysts to interpret the probe as being driven by Beijing’s desire for data-rich companies to be listed domestically.
ANT DECOUPLING
Alibaba, too, got caught in a similar crosshairs when regulators abruptly halted Ant Group’s planned $37 billion Hong Kong IPO in Shanghai in late 2020.
Coinciding with the announcement of its dual initial listing, Alibaba said in its annual financial report on Tuesday that several Ant Group executives have resigned from their posts in the Alibaba Partnership, a top decision-making body of the e-commerce giant. Continue reading
The divestments are part of an ongoing decoupling of Alibaba’s fintech arm, fueled by the botched IPO. Continue reading
Justin Tang, head of Asian research at Singapore-based investment adviser United First Partners, said Alibaba’s decision would give a boost to Alibaba’s shares due to its potential inclusion in Stock Connect.
“In relation to other tech listings of a similar nature, this will be the playbook for companies looking to hedge against regulatory risks Chinese companies face on US stock exchanges,” he said.
According to the HKEX, to switch to a dual primary listing, companies had to have a good track record of at least two full financial years listing overseas and have a minimum capitalization of HK$40 billion (US$5.10 billion) or a market value of at least HK$10 billion HK$ plus revenue of at least HK$1 billion for the most recent financial year.
($1 = 7.8493 Hong Kong dollars)
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Reporting by Josh Horwitz in Shanghai, Scott Murdoch in Hong Kong; Additional reporting by Anshuman Daga in Singapore; Editing by Kenneth Maxwell
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