Image Credit: Jernej Furman (Flickr)
Why Alibaba and Other Companies are Changing Their Primary Listing to the Hong Kong Exchange
Will there be a mass delisting of Chinese companies from U.S. stock exchanges? A deadline clock is ticking on an elusive agreement between the SEC and Beijing. Once thought to be assured, the possible negative outcome has now caused companies to resign themselves to the idea that an agreement to prevent mass delistings of Chinese companies from U.S. exchanges may not happen. The companies involved are already preparing for this potential.
Most recently, the highly recognized e-commerce giant Alibaba (BABA) said it will be applying for a primary listing on the Hong Kong exchange. BABA is currently listed on the NYSE (since its IPO in 2014) and has had a secondary listing in Hong Kong since 2019.
At
Issue
Under a U.S. law that took effect last year, companies whose auditors are not permitted to be inspected by U.S. regulators for three consecutive years will be delisted from U.S. exchanges. The Securities and Exchange Commission (SEC) has already named more than 150 Chinese
companies that may be removed from trading in the U.S. as early as 2024, or sooner if U.S. lawmakers have their way by shortening the deadline. Alibaba will likely join this growing list after it publishes its 2021 annual report this month.
Beijing and Washington have been negotiating to try to avoid the need to delist, but there hasn’t been noticeable progress. SEC Chair Gary Gensler said two weeks ago that he isn’t confident the two sides can reach an agreement.
The
Benefit to Listing on a U.S. Exchange
Although being listed in the U.S. often means learning new processes and more paperwork for foreign companies, it is considered worth it for the longer term. Although they may be subject to increased scrutiny and transparency, the SEC oversight requires, investors take comfort in the strict regulatory compliance.
A company like Alibaba can use the extra protection provided by its NYSE listing to position itself as a rival to U.S.-based companies like the online retailer Amazon (AMZN). The listing elevates shares of companies on the “radar” of U.S. investors if they are looking for exposure to, in this case, online retailers. Investors can also be assured of a certain level of uniformity in reporting.
The NYSE states the benefits of their exchange include improved branding and visibility, access to capital, and increased liquidity opportunities.
Take
Away
Time is running out for more than 150 Chinese companies listed on U.S. exchanges as the SEC and Beijing are failing to come to terms with U.S. compliance requirements.
Alibaba is likely to be added to that list after its annual report is made public this week. Many of these companies have had a vibrant relationship with the U.S. capital markets but are now preparing to list Hong Kong as their primary market.
This is important for U.S. investors of Chinese ADRs to see coming well in advance. Being delisted from U.S. exchanges could substantially reduce global interest in these stocks and subject holders of the companies to lower transparency standards.
Managing Editor, Channelchek
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Sources
https://www.investopedia.com/articles/investing/112614/alibaba-ipo-why-list-us.asp
https://www.wsj.com/articles/alibaba-prepares-for-its-u-s-divorce-11658832946
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