Alibaba wants to add primary listing in Hong Kong, Chinese investors pursue after crackdown

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

  • Expect to add primary listing in HK in late 2022, keep NYSE listing
  • HK Shares Up Nearly 6%; move will diversify investor base -CEO
  • Considering increasing investor access to Alibaba shares in mainland China
  • In line with move Ant Group top executives step back from Alibaba partnership

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

The e-commerce giant’s move, announced Tuesday, comes as both Washington and Beijing tighten controls on listings of Chinese companies, and after a devastating regulatory crackdown in China, Alibaba has fined $ 2.8 billion and an initial public offering (IPO) of its affiliate Ant Group.

It also comes against the background of an audit dispute between China and the United States, which threatens to fire hundreds of Chinese companies listed in New York.

Analysts said the change should give investors in mainland China easier access to the stock through a link to the Hong Kong exchange known as the Stock Connect. At 0358 GMT, shares were up 5.9% as the Hong Kong benchmark (.HSI) increased by 1.5%.

“Being in Stock Connect will make it easier for mainland Chinese investors to eventually buy the shares, so investors are happy to get in and buy the shares in Hong Kong today,” said Louis Tse, general manager of Wealthy Securities.

Alibaba has already been on the Hong Kong stock exchange with a secondary listing since 2019 and expects the primary listing to be completed by the end of 2022. Chief Executive Daniel Zhang said the dual listing would foster a “wider 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 — which operate an internet or other high-tech ventures — with weighted voting rights or floating rate entities (VIE). ​to duplicate primary lists in the city.

Under a VIE structure, a Chinese company establishes an offshore entity for foreign listing purposes, allowing foreign investors to purchase the shares.

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

SWIPE CRACKDOWN

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

Since 2020, the company’s stock price has fallen in both markets as sweeping regulation by Beijing has battered Chinese tech companies.

At the same time, US regulators have stepped up controls on the accounts of Chinese companies listed in New York and demanded greater transparency.

While the scope was broad, one of the main focuses of China’s crackdown was regulators seeking to expand oversight of public offerings.

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

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

ANT GROUP DISCONNECT

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

Coinciding with the announcement of its dual primary listing, Alibaba said in its annual financial report on Tuesday that several Ant Group executives have stepped down from their positions in the Alibaba Partnership, a top decision-making body for the e-commerce giant.

The departure is part of an ongoing decoupling of Alibaba’s fintech division, spurred on by its failed IPO.

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

“Regarding other similar technical listings, this will be the roadmap for companies looking to hedge against the regulatory risk Chinese companies face on US stock exchanges,” he said.

To move to a dual primary listing, the HKEX said companies must have a good track record of at least two full fiscal years abroad, and a capitalization of at least HK$40 billion ($5.10 billion) or a market value of at least HK$10 billion plus sales of at least HK$1 billion 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; Editing by Kenneth Maxwell

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