China’s Alibaba applies for dual primary listing in Hong Kong

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 will apply for a primary listing in Hong Kong and retain its listing in the United States, the first large company to benefit from a rule change allowing dual-equity Chinese high-tech companies to seek initial dual listings in Hong Kong.

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.

Alibaba’s stock jumped 4% in early trading in Hong Kong as analysts said the change would give mainland China investors easier access to shares via a link to the Hong Kong stock exchange known as Stock Connect. At 0303 GMT, shares were up 5% while Hong Kong’s index was up (.HSI) It rose 1.2%.

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 audits 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 passenger service giant Didi Chuxing soon 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.

disengage

Alibaba also found itself in similar crossfire when regulators abruptly halted an initial public offering of Ant Group worth $37 billion in Hong Kong in 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 Alibaba’s stock due to its possible 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.

(1 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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