Alibaba aims to add an initial listing in Hong Kong, attracting Chinese investors after the crackdown

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

SHANGHAI, July 26 (Reuters) – Alibaba (9988.HK) It plans to add an initial listing in Hong Kong to its New York presence, targeting investors in mainland China as it became the first large company to take advantage of a base change in the financial center to attract high-tech Chinese firms.

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

It also comes against the backdrop of an audit dispute between China and the United States that threatens to expel hundreds of Chinese companies listed in New York.

Analysts said the change should give mainland China investors easier access to stocks via a link to the Hong Kong stock exchange known as Stock Connect. At 0358 GMT, shares were up 5.9% while Hong Kong (.HSI) It rose 1.5%.

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

Alibaba, which has already been on the Hong Kong Stock Exchange with a secondary listing since 2019, said it expects to complete the initial listing by the end of 2022. CEO Daniel Chang said the dual listing will promote a “wider and more diversified investor base”.

The move comes after the Hong Kong Stock Exchange (HKEX) in January changed its rules to allow “innovative” Chinese companies – which operate online or other high-tech businesses – with weighted voting rights or entities of variable interest (VIE) to carry out dual operations. Initial listings in the city.

Under the VIE structure, a Chinese company creates an offshore entity for the purposes of an offshore listing that allows foreign investors to buy into the shares.

“Hong Kong is also a launching pad for Alibaba’s globalization strategy, and we are fully confident in China’s economy and future,” Alibaba CEO Zhang said in a statement.

sweep the funnel

Alibaba listed on the New York Stock Exchange in September 2014, marking what was at the time the largest initial public offering in history.

Since 2020, the company’s stock price has fallen in both markets, as a sweeping regulatory crackdown by Beijing has hit Chinese tech companies.

At the same time, US regulators have stepped up scrutiny of Chinese companies listed in New York, demanding more transparency.

Although wide in scope, the primary focus of China’s crackdown has been on regulators seeking to expand censorship of public performances.

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

The company later de-listed and began preparations for a listing in Hong Kong, prompting analysts to interpret the investigation as motivated by Beijing’s desire to list data-rich companies locally.

ANT disengagement group

Alibaba also found itself in similar crossfire when regulators abruptly halted an initial public offering of Ant Group worth $37 billion in Hong Kong and Shanghai in late 2020.

Coinciding with the announcement of its dual core listing, Alibaba said Tuesday in its annual financial report that several Ant Group executives have resigned from their positions at the Alibaba Partnership, the e-commerce giant’s highest decision-making body. Read more

The departures are part of an ongoing decoupling of the fintech division from Alibaba, prompted by its failed initial public offering. Read more

Justin Tang, head of Asian research at United First Partners, an investment advisor in Singapore, said Alibaba’s decision would boost the company’s shares due to its potential listing on Stock Connect.

“For other technology listings of a similar kind, this will be the playbook for companies looking to hedge against the regulatory risks that Chinese companies face on US exchanges,” he said.

In order to switch to a dual primary listing, the HKEx said companies must have a good track record of at least two full financial years listed abroad, and a capitalization of at least HK$40 billion ($5.10 billion) or a market value of at least For at least HK$10 billion plus revenues of at least HK$1 billion for the most recent fiscal year.

(One dollar = 7.8493 Hong Kong dollars)

Additional reporting by Josh Horowitz in Shanghai and Scott Murdoch in Hong Kong; Additional reporting by Anshuman Daga in Singapore. Editing by Kenneth Maxwell

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