Alibaba aims to add primary listing in Hong Kong, attracts Chinese investors after pressure

A man walks past the Alibaba Group office building in Beijing, China, August 9, 2021. REUTERS/Tingshu Wang

SHANGHAI/HONG KONG, July 26 (Reuters) – Alibaba (9988.HK) It plans to add a primary listing in Hong Kong to its New York presence and is targeting investors in mainland China as it is the first major company to take advantage of a rule change in the financial center to attract high-tech Chinese firms.

The e-commerce giant’s move, announced Tuesday, left Alibaba with a $2.8 billion fine and canceled its initial public offering (IPO) as both Washington and Beijing sharpened scrutiny of Chinese companies’ listings and after devastating regulatory crackdown in China. . its subsidiary Ant Group.

It also comes against the backdrop of a control dispute between China and the United States, which threatens to export hundreds of Chinese companies listed in New York.

Analysts said the change should give mainland Chinese investors easier access to shares through a link to the Hong Kong stock exchange known as Stock Connect. Secondary listings in Hong Kong, such as Alibaba’s current listing, are not allowed in Stock Connect trading. Read more

Shares rose 4.8% at closing, as Hong Kong benchmark (.HSI) It gained 1.7%.

“Being in Stock Link means it will be more appropriate for mainland Chinese investors to eventually buy the stock, so investors are happy to step up today and buy the stock from Hong Kong,” says Louis Tse, managing director of Wealthy Securities.

Currently available on the Hong Kong stock exchange with a secondary listing since 2019, Alibaba said it expects the primary listing to be completed by the end of 2022. Chief Executive Officer Daniel Zhang said the dual listing would foster a “broader and more diverse investor base”.

The move comes after the Hong Kong Stock Exchange (HKEX) changed its rules in January to allow “innovative” Chinese companies with weighted voting rights or floating rate entities (VIEs) to operate an internet or other high-tech enterprise. primary listings in the city.

Under a VIE structure, a Chinese company establishes an overseas presence for overseas listing purposes that allows foreign investors to purchase stocks.

“Hong Kong is also the launching pad for Alibaba’s globalization strategy, and we have full confidence in China’s economy and future,” Alibaba’s CEO, Zhang, said in a statement. Said.

CRUSH PRESSURE

Alibaba was listed on the New York Stock Exchange in September 2014, marking the largest IPO in history at the time.

Since 2020, the company’s share price has fallen in both markets as extensive regulatory crackdown from Beijing has battered Chinese tech companies.

At the same time, US regulators stepped up the review of the accounts of Chinese firms listed in New York, demanding greater transparency.

While broad in scope, the main focus of China’s pressure has been on regulators trying to expand oversight of IPOs.

Last year, Chinese authorities launched an investigation into ride-hailing giant Didi Global soon after it was listed in New York, citing data privacy concerns.

The company was later delisted and began preparations for listing in Hong Kong, leading analysts to interpret the investigation as being driven by Beijing’s desire to list data-rich companies domestically.

ANT GROUP SEPARATION

Alibaba found a similar target when regulators abruptly halted Ant Group’s planned $37 billion IPO in Hong Kong and Shanghai in late 2020.

In its annual financial report on Tuesday, Alibaba said that simultaneously with the announcement of the two key listings, several Ant Group executives have stepped down from their roles at Alibaba Partnership, a senior decision-making body for the e-commerce giant. Read more

The departures are part of the fintech division’s ongoing divergence from Alibaba, fueled by the failed IPO. Read more

Justin Tang, head of Asia research at investment advisor United First Partners in Singapore, said Alibaba’s decision will increase the company’s stake due to its potential to be included in Stock Connect.

“Relating to other similar technology listings, this will be a playbook for companies looking to hedge against the regulatory risks Chinese companies face in US stock markets,” he said.

To qualify for the dual primary listing, HKEX said companies must have a good track record of at least two full financial years listed abroad and have a capitalization of at least HK$40 billion (US$5.10 billion). At least HK$10 billion plus at least HK$1 billion in revenue for the most recent fiscal year.

($1 = 7.8493 Hong Kong dollars)

reporting by Josh Horwitz in Shanghai and Scott Murdoch in Hong Kong; additional reporting by Anshuman Daga in Singapore; Edited by Kenneth Maxwell

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