Alibaba Group’s new primary listing plan gave Hong Kong-listed Chinese technology stocks a boost on Tuesday as investors perceived the announcement as another potential sign that Beijing’s big tech clampdown may be easing.
Alibaba, which currently has a primary listing on the New York Stock Exchange (NYSE), said on Tuesday it would change its current secondary listing in Hong Kong to a primary listing to be completed within this year.
Hong Kong-listed Alibaba shares, which remain a secondary listing, surged 4.82% to close at HK$104.4 (US$13.3) on Tuesday. Tencent’s shares rose 0.9% to HK$329.4 while Meituan increased 1.33% to HK$190.7. Bibilbili Inc gained 1.58% to HK$205.8.
The Hang Seng Index, the benchmark of Hong Kong’s stock markets, rose 1.67% to 20,905 largely on tech stock gains.
Some analysts said Alibaba pushed forward its primary listing plan in Hong Kong because it wanted to mitigate the risk of being forced to delist from the NYSE amid intensifying political tensions between China and the US.
The listing could open the way for the company’s shares to be included in the Stock Connect program between mainland and Hong Kong, which allows mainland investors to trade them more easily, the analysts said.
Alibaba’s shares have lost 65% since Ant Group, Alibaba’s online payment unit, scrapped its planned US$37 billion initial public offering in the United States in November 2020. Since then, Beijing has increasingly tightened its regulations on Internet companies.
This year, the US Securities and Exchange Commission (SEC) started tightening its listing rules by requiring US-listed Chinese companies, or so-called “China concept stocks,” to meet its accounting standards or delist from US stock markets.
On March 10, the US SEC announced that five Chinese companies – biopharmaceutical firms BeiGene, Zai Lab and Hutchmed, fast-food chain Yum China and wafer cleaning equipment maker ACM Research – could be delisted if they could not meet US accounting standards.
It later added 17 Chinese companies to its list of entities facing possible expulsion from American exchanges on April 21 and 80 more, including JD.com and Bilibili, on May 4.
The China Securities Regulatory Commission (CSRC) has said previously that it is communicating with its counterpart in the US to try to resolve the matter.
On Sunday, the Financial Times reported China was preparing a system to separate US-listed Chinese companies into three groups based on their level of data sensitivity so that they could more readily comply with the US’ information disclosure requirements and China’s data security rules at the same time.
However, the CSRC told media on Monday that it had not yet researched a plan for such a three-tiered system to help Chinese firms avoid US delisting.
Before regulators in China and the US could reach any agreement, Alibaba said in a filing to the Hong Kong stock exchange on Tuesday that it would apply for changing its current secondary listing status to a primary one.
Upon completion of the change, Alibaba would become a dual-primary listed company on the NYSE in the form of American Depositary Shares (“ADSs”) and on the Hong Kong stock exchange in the form of ordinary shares.
The company said its ADSs listed in the US and ordinary shares listed in Hong Kong would be fungible while investors could continue to choose to hold their shares in either form.
Given the substantial presence of its business operations in Greater China, the company expects that its dual-primary listing status will allow it to broaden its investor base and facilitate incremental liquidity by expanding access to China-based and other Asia-based investors, according to the filing.
In the first half of this year, the company’s average daily trading volume in Hong Kong was approximately US$700 million, compared to about US$3.2 billion in the US.
Daniel Zhang, chief executive of Alibaba, told the company’s employees in an open letter on the same day that Alibaba had been in front of the times and met the huge business opportunities of China’s robust economic growth in the digital era over the past 23 years.
Zhang said the company would continue to enhance technological innovation, focus on high-quality development, increase its international competitiveness and also serve society.
“A lot of people are familiar with this: people always over-concentrate on the changes within a year but neglect the changes in five to ten years,” Zhang said. “The changes that we have made in our business, structure and culture over the past one year will become a new starting point for Alibaba’s future developments.”
Zhang said Alibaba would continue to transform itself and rectify its businesses with determination. He said although these reforms might take time to produce results, the company believed that it was on the right path.
Conita Hung, investment strategy director at Tiger Faith Asset Management, said Alibaba’s shares would gain support in the short run with the company’s latest announcement. She speculated that the announcement might mean that the company had already settled its regulatory issues with Chinese regulators.
Hung said many international institutional investors would consider buying Alibaba’s shares after the company gained primary listing status in Hong Kong and improved its information disclosure.
However, she added that it might take some time before Alibaba’s shares could significantly rise as the procedures for getting primary listing status were as complicated as those for an IPO on the main board.
Jason Lee, vice president of Investment Strategy Institute, an academic group, said it was likely that Alibaba would be included in the Stock Connect program after it gained primary listing status in Hong Kong.
Lee said he expected that some other “China concepts stocks” such as JD.com would follow in Alibaba’s footsteps and seek dual primary listing in Hong Kong and New York.
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