The Hong Kong stock exchange is expected to benefit from a pipeline of new dual primary listings as many Chinese companies look for a safe haven in case they are forced to delist from US markets.
After nine companies completed their dual-primary listings in Hong Kong this year, about 30 more including e-commerce giant Alibaba Group and video-sharing platform Bilibili have filed their applications for the same arrangement this year or in 2023.
Analysts said dual primary listing in Hong Kong has become the top choice for the US-listed Chinese companies that had been ordered by the US to meet its accounting standards. They said many of these so-called China concept stocks might debut in Hong Kong next year.
The analysts also said although China and the US had signed an agreement in late August to solve the accounting disputes of US-listed Chinese firms, it was uncertain whether both sides would compromise on new accounting practices by the end of this year.
Between March and May, the US Securities and Exchange Commission (SEC) announced that more than a hundred US-listed companies could be delisted if they could not meet US accounting standards.
The China Securities Regulatory Commission, the country’s stock market watchdog, noting that it stood firmly against politicizing securities regulation, said that China’s Ministry of Finance had recently made positive progress after engaging with the US Public Company Accounting Oversight Board.
The disputes, together with virus outbreaks in Hong Kong and mainland China, created huge downward pressure on the Hang Seng Index, which on March 15 closed at 18,415 points, down 36% from a year earlier.
Alibaba’s American depositary receipt (ADR) also fell to as low as US$76.76 on that day, down 75% from its peak of US$309.92 on October 23, 2020.
Those that have completed their dual primary listings in Hong Kong this year include Guangzhou Xiaopeng Motors, Li Auto, Miniso and BeiGene.
The procedures for a dual primary listing were the same as those for an initial public offering (IPO) on the main board, said Conita Hung, investment strategy director at Tiger Faith Asset Management.
After Alibaba gains primary listing status in Hong Kong, it will have to fulfill a higher information disclosure requirement, making its shares more attractive to international institutional investors, Hung added.
Nicolas Aguzin, chief executive of the Hong Kong stock exchange, told mainland media in April that he expected the trend of more US-listed Chinese firms debuting in Hong Kong would continue.
He said about 170 companies had applied to go public in Hong Kong. Some of them chose to have dual primary listings instead of secondary listings as they wanted to be included in the Stock Connect program, in which mainland investors can trade their shares.
He said US-listed Chinese companies could significantly improve their shareholder mix with dual primary listings in Hong Kong.
According to the current listing rule in Hong Kong, US-listed Chinese companies can apply for a secondary listing in Hong Kong if their market values have reached certain levels. Large companies such as JD.com and Alibaba plan secondary listings in Hong Kong but they are excluded from the Stock Connect program.
In contrast, shares of smaller companies such as Xiaopeng Motors and Li Auto, which have primary listings in Hong Kong, saw higher liquidity in the stock markets after they were included in the Hang Seng TECH Index and the Stock Connect program earlier this year.
Huang Wentao, chief economist and chief macro analyst of CITIC Construction Investment, wrote in a research report on Wednesday (September 7) that about 32 US-listed Chinese firms would have their dual primary listings in Hong Kong this year or in 2023.
Huang said these companies, which are mainly engaged in IT, financial and retail businesses, were expected to raise HK$81.9 billion ($11.83 billion) in Hong Kong this year and HK$17.5 billion in 2023. He opined that such fund-raising demand would not have a big negative impact on Hong Kong stock markets.
On August 26, the US Public Company Accounting Oversight Board (PCAOB), the China Securities Regulatory Commission (CSRC) and China’s Ministry of Finance signed a statement of protocol, which will allow PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong.
According to the agreement, PCAOB will send teams to mainland China and Hong Kong to see whether the Chinese side’s promises hold up. The teams will report their work to the PCAOB at the end of this year. The CSRC said the Chinese side would take part in and assist in the interviews and testimonies of relevant personnel of audit firms requested by the US.
A CITIC Securities report said on September 3 that Hong Kong would be the best location for the PCAOB to check the audit papers of the US-listed Chinese firms. It said the initial agreement signed by the CSRC and PCAOB last month could help lower the risks of having any of these firms delisted suddenly.
It said a total of 26 US-listed Chinese companies had come back to go public in Hong Kong, mainly through secondary listings, over the past few years while their combined market cap amounted to HK$5.54 trillion, or 15% of the total market cap of all Hong Kong stocks.
It said that, as it was possible that China and the US would not manage to compromise on any new accounting practices later this year, many Chinese companies still needed to prepare backup plans in case they were forced to delist in the US. It said China concept stocks with a combined market cap of about HK$1.4 trillion would seek to list in Hong Kong.
On July 21, the New York Stock Exchange and Singapore Exchange (SGX) signed an agreement to collaborate on the dual listing of companies on both exchanges and work together in a number of other key areas focused on the capital markets. A spokesperson for the SGX said the bourse provided different ways for Chinese firms to go public in Singapore.
Prior to this, the US-listed NIO, a Chinese e-vehicle maker, had secondary listings in Hong Kong in March and in Singapore in May. The company has become the first China concept stock to be listed in all three markets.
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