Alibaba aims for primary listing in Hong Kong, lures China investors after crackdown

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

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  • HK expects to add primary listing by end of 2022, keep NYSE listing
  • HK shares rise nearly 6%; The move will diversify the investor base -CEO
  • China’s major investor could see increased access to Alibaba stock
  • The move also sees year group executives withdraw from the Alibaba partnership

SHANGHAI, July 26 (Reuters) – Alibaba (9988.HK) It 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 the rule change in the financial center to attract high-tech Chinese companies.

The e-commerce giant’s move, announced on Tuesday, comes as both Washington and Beijing are closely scrutinizing Chinese companies’ listings after a devastating regulatory crackdown in China that fined Alibaba $2.8 billion and scuppered an initial public offering (IPO). Its subsidiary ant group.

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

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Analysts said the change would make it easier for China’s mainstream investors to access stocks through a link to the Hong Kong stock market, known as Stock Connect. At 0358 GMT, shares were up 5.9%, while the Hong Kong benchmark (.HSI) Up 1.5%.

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“Being on Stock Connect will ultimately make Chinese investors more comfortable buying stocks, so investors are excited to jump in and buy stocks in Hong Kong today,” said Louis Tse, managing director of Wealthy Securities.

Already 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 Daniel Zhang said the dual listing would foster a “wider and more diverse investor base”.

The Hong Kong Stock Exchange (HKEX) changed its rules in January to allow “innovative” Chinese companies – those involved in Internet or other high-tech businesses – to implement weighted voting rights or variable interest entities (VIEs). Master listings in the city.

Under a VIE structure, a Chinese company sets up a foreign entity for foreign listing purposes that allows foreign investors to purchase shares.

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

A sweeping crackdown

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

Since 2020, the company’s share price has fallen in both markets as Beijing’s massive regulatory crackdown hits Chinese tech firms.

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

Although broad in scope, the main focus of China’s crackdown has been regulators seeking to expand oversight of public offerings.

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

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The company later listed and began preparations to list in Hong Kong, with leading analysts explaining the study was driven by Beijing’s desire for data-rich companies to list locally.

Ant group dissection

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

Along 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 at Alibaba Partnerships, a top decision-making body for the e-commerce giant. read more

The departures are part of the ongoing divestment of the fintech division from Alibaba. read more

Justin Tang, head of Asia research at investment adviser United First Partners in Singapore, said Alibaba’s decision would boost the company’s stock because of its possible inclusion in Stock Connect.

“As with other such tech listings, this will be a playbook for companies looking to hedge against the regulatory risk faced by Chinese companies on US stock markets,” he said.

To switch to dual primary listing, companies must have a good track record of at least two full financial years listed overseas, a capitalization of at least HK$40 billion ($5.10 billion) or a market value of at least HK$10 billion in the most recent financial year and revenue of at least HK$1 billion.

($1 = 7.8493 Hong Kong dollars)

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Reporting by Josh Horwitz in Shanghai and Scott Murdoch in Hong Kong; Additional reporting by Anshuman Taka in Singapore; Editing by Kenneth Maxwell

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