Alibaba to apply for primary Hong Kong listing to woo Chinese investors

Alibaba Group Holding Ltd. will seek a primary listing in Hong Kong, entrenching the financial hub's status as an alternative to US markets and paving the way for Chinese investors

Alibaba Group Holding Ltd. will seek a primary listing in Hong Kong, entrenching the financial hub’s status as an alternative to US markets and paving the way for investors in China to directly buy shares of the country’s most prominent e-commerce company for the first time.

Alibaba said Tuesday it will apply to elevate its trading status in the Asian city, which will in turn allow the $285 billion giant to seek inclusion in the Stock Connect link with the Shanghai and Shenzhen exchanges. That could boost liquidity after a year-long selloff triggered by China’s economic slowdown and Beijing’s crackdown on its most powerful internet firms.

The move, expected by year-end, will grant hundreds of millions of investors in mainland China direct access to one of the country’s most storied names, which in 2014 made waves when it debuted in New York as the largest-ever initial public offering. Alibaba’s action could encourage peers to follow suit, helping cement Hong Kong as an alternative venue now that American regulators are threatening to toss Chinese companies off US bourses unless they comply with auditing rules. 

Alibaba rose as much as 4.5% in Hong Kong, while bourse operator Hong Kong Exchanges and Clearing Ltd. climbed more than 3%. SoftBank Group Corp., Alibaba’s largest shareholder, rose more than 3% in Tokyo.

“This is a massive move for Alibaba, given it is the biggest secondary listing in Hong Kong,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd. Inclusion in the Stock Connect “can lead to a more diversified investor base for Alibaba and let mainland investors have direct investment access to Alibaba via southbound trading.”

Alibaba has shed some two-thirds of its value since a 2020 peak, pummeled by a regulatory crackdown that sought to rein in anti-competitive behavior across the internet sector. It currently has a secondary listing on the Hong Kong bourse, but has seen a rise in public float and transaction volume on the exchange there, it said in a statement on Tuesday. Its average daily trading volume in Hong Kong was about $700 million, compared to about $3.2 billion in the US.

HKEx Chief Executive Officer Nicolas Aguzin has said more companies with secondary shares in Hong Kong are considering primary listings, while others may be forced to do so by market rules as more of their volume migrates to the city. 

The prospect of Stock Connect inclusion for companies like Alibaba has been subject of intense speculation among traders in Hong Kong, which currently excludes companies with both secondary listings and weighted voting rights from its mainland trading links. It highlights the urgency to seek new investors ahead of possible delistings from American exchanges.

“Alibaba’s move might point to internet companies preparing for a fall-back position, in case they have to delist from the U.S.,” said Redmond Wong, market strategist at Saxo Capital Markets.

While some market participants had hoped the exchange would relax the rules that bar such companies, a primary listing is emerging as an alternative path. Bilibili Inc. in July won shareholder approval to convert its secondary Hong Kong listing status to dual-primary, while Zai Lab Ltd. completed the procedure in June.

A dual-primary listing on the Hong Kong Exchange is often more costly and requires stricter reporting rules than a secondary listing. Unlike companies with a primary listing in Hong Kong, firms with a secondary listing in the city are exempted from certain rules and don’t have to disclose things such as financial guarantees provided to affiliates and stock pledges made by the controlling shareholder.

Other Chinese companies have opted to list directly in Hong Kong under dual-primary status. That was the case for electric vehicle makers XPeng Inc. and Li Auto Inc., which began trading in the Asian financial hub over the past year.

“The timing may be right for investor interest as it aligns with the fading of the tech regulatory crackdown,” said Marvin Chen, a strategist at Bloomberg Intelligence. “More broadly, Alibaba is paving a path for US ADRs to move away from US exchanges, introduce domestic capital, and to be less reliant on global foreign investors.”