Image: Reuters Berita 24 English - As the first significant business to benefit from a regulation change allowing high-tech Chinese companie...
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| Image: Reuters |
Berita 24 English - As the first significant business to benefit from a regulation change allowing high-tech Chinese companies with dual class shares to pursue dual primary listings in Hong Kong, Alibaba will submit an application for a primary listing in Hong Kong and maintain its U.S. listing.
The e-commerce giant's decision, which was made public on Tuesday, comes as Washington and Beijing increase their scrutiny of Chinese businesses' listings, as well as following a severe regulatory crackdown in China that cost Alibaba a $2.8 billion fine and derailed an IPO of its affiliate Ant.
At the start of Hong Kong trading, Alibaba's stock increased 4% as analysts predicted that the shift would make it simpler for mainland Chinese investors to purchase shares through the Stock Connect, a connection to the Hong Kong stock exchange. The shares were up 5% at 03:03 GMT, while the Hong Kong benchmark was up 1.2 %.
Alibaba, which has had a secondary listing on the Hong Kong Stock Exchange since 2019, said it anticipates finishing the primary listing by the end of 2022. The dual listing, according to Chief Executive Daniel Zhang, would encourage a "wider and more diversified investment base."
The action follows a rule change made by the Hong Kong Stock Exchange (HKEX) in January that permitted "innovative" Chinese companies with weighted voting rights or variable interest entities (VIEs) to conduct dual primary listings in the city if they were engaged in the internet or another high-tech industry.
In a VIE structure, a Chinese company creates an offshore entity for the purpose of listing its stock abroad. This enables international investors to purchase shares of the company.
Alibaba's CEO Zhang stated in a statement that "Hong Kong is also the launchpad for Alibaba's globalisation strategy, and we are completely confident in China's economy and future."
GRAND CRACKDOWN
In September 2014, Alibaba made its New York Stock Exchange debut, making it the biggest initial public offering (IPO) in history at the time.
The company's share price has plummeted in both markets since 2020 as a result of Beijing's extensive regulatory crackdown on Chinese IT firms.
American regulators have also increased their examination of the financial statements of Chinese companies that are listed in New York while calling for more transparency.
Despite its vast breadth, China's crackdown has placed a major emphasis on regulators' efforts to increase public offering monitoring.
Just after Didi Chuxing listed in New York last year, Chinese regulators opened an investigation into the dominant ride-hailing company, citing worries over data protection.
Analysts have concluded that the investigation was motivated by Beijing's desire for data-rich enterprises to list domestically because the company eventually delisted and started making plans to list in Hong Kong.
DECOUPLING ANT
When regulators abruptly stopped Ant Group's planned $37 billion IPO in Hong Kong and Shanghai in late 2020, Alibaba also found itself in the spotlight.
A number of Ant Group executives resigned from their positions in the Alibaba Partnership, the e-commerce giant's main decision-making body, Alibaba said on Tuesday, concurrent with the announcement of its dual primary listing.
The resignations are a part of a continuous dissociation of Alibaba's fintech section from the disastrous IPO.
According to Justin Tang, head of Asian research at Singapore-based investment firm United First Partners, Alibaba's choice would increase Alibaba shares because of Stock Connect's prospective inclusion.
According to him, "this will be the template for corporations trying to hedge against regulatory risk that Chinese companies are encountering on the U.S. bourses with reference to other tech listings of similar kind."
Companies must have at least two full financial years of overseas listing experience and a capitalization 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 in order to switch to a dual primary listing, according to the HKEX.
(1 Hong Kong dollar = 7.8493)
