Alibaba aims to add primary listing in Hong Kong, woo China investors

Removes Ant executives amid shake-up, increased scrutiny

Alibaba plans to add a primary listing in Hong Kong to its New York presence, targeting investors in mainland China as it becomes the first big company to take advantage of a rule change in the financial hub to attract high-tech Chinese firms.

Also, Alibaba Group has removed all executives of financial affiliate Ant Group from its partnership, shaking up a key structure that maintains control of the e-commerce giant. 

The Hangzhou-based company removed Ant executives, including Chairman and CEO Eric Jing, Chief Technology Officer Ni Xingjun and five others from its partnership, according to an annual report published on Tuesday.

The e-commerce giant’s  Hong Kong primary listing move comes as both Washington and Beijing sharpen scrutiny over Chinese companies’ listings, and after a devastating regulatory crackdown in China left Alibaba with a $2.8 billion fine and scuppered an initial public offering (IPO) of Ant Group.

It also comes against the backdrop of an audit dispute between China and the United States, which is threatening to kick out hundreds of Chinese companies listed in New York.

According to analysts, JD.com and Baidu are among Chinese firms that may follow Alibaba Group in applying for a Hong Kong primary listing, as they seek to attract mainland investors and hedge against the risk of being kicked off US exchanges..

Alibaba rose as much as 6.5 per cent in Hong Kong on Tuesday, while its US-listed stock rose 3 per cent as trading opened in New York. 

"Being in Stock Connect means it will be more convenient for mainland Chinese investors to eventually buy the stock, so investors are happy to step in today and buy the stock in Hong Kong," says Louis Tse, managing director of Wealthy Securities.

Already present on the Hong Kong bourse 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 diversified investor base".

The move comes after the Hong Kong Stock Exchange (HKEX) in January changed its rules to allow "innovative" Chinese companies - operating an internet or other high-tech business - with weighted voting rights or variable interest entities (VIE) to carry out dual primary listings in the city.

Under a VIE structure, a Chinese company sets up an offshore entity for overseas listing purposes that allows foreign investors to buy into the stock.

"Hong Kong is also the launch pad for Alibaba's globalisation strategy, and we are fully confident in China's economy and future," Alibaba's CEO Zhang said in a statement.

SWEEPING CRACKDOWN

Alibaba listed on the New York Stock Exchange in September 2014, marking what was at the time the largest IPO in history.

Since 2020, the company's share price has tanked in both markets, as a sweeping regulatory crackdown by Beijing has battered Chinese tech companies.

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

While broad in scope, a core focus of China's crackdown has been regulators seeking to expand oversight of public offerings.

Last year, Chinese authorities launched a probe into ride-hailing giant Didi Global just after it listed in New York, citing data privacy concerns.

The company later de-listed and began preparations to list in Hong Kong, leading analysts to interpret the probe as driven by a desire on Beijing's part for data-rich companies to list domestically.

ANT GROUP DECOUPLING

Alibaba also found itself in similar crosshairs when regulators abruptly halted Ant Group's planned $37 billion IPO in Hong Kong and in Shanghai in late 2020.

Concurrent with the announcement of its dual primary listing, Alibaba said on Tuesday in its annual financial report that several Ant Group executives had stepped down from their posts in the Alibaba Partnership, a top decision-making body for the e-commerce giant.

The departures are part of an ongoing decoupling of the fintech division from Alibaba, spurred by the botched IPO.

Justin Tang, head of Asian research at investment advisor United First Partners in Singapore, said that Alibaba's decision would boost the company's shares due to its potential inclusion in Stock Connect.

"With regards to other tech listings of similar kind, this will be the playbook for companies looking to hedge against regulatory risk that Chinese companies are facing on the U.S. bourses," he said.

In order to switch to a dual primary listing, the HKEX said companies had to have a good track record of at least two full financial years listed overseas, and a capitalisation of at least HK$40 billion ($5.10 billion) or a market value of at least HK$10 billion plus revenue of at least HK$1 billion for the most recent financial year. 

Why a primary listing in Hong Kong matters 

The decision by Alibaba Group  to change its listing status in Hong Kong to “primary” from “secondary” is a move similar to that taken by other companies in the Asian hub recently and might spur others to do the same. 

What is a primary listing?

It refers to the main stock exchange where a public company’s shares are traded. In order to list, a firm has to fulfil requirements of that market. Secondary listings, often subject to less-stringent regulation, offer a separate trading venue that may push liquidity in trading of the shares and provide access to a wider pool of investors — a key in the case of Hong Kong.  

Why are US-listed companies switching status in Hong Kong? 

It’s a necessary step to gain access to the Stock Connect link with the Shanghai and Shenzhen exchanges, which will expand access to investors in mainland China. The move is increasingly important because US-listed Chinese firms are under intense scrutiny by US regulators. 

What’s needed for the change?

A dual-primary listing is often more costly and requires stricter reporting rules. Additional expenses and items include those related to administration, disclosure and compliance. Firms provide the exchange with a schedule of when all requirements will be met.