Hong Kong’s Alibaba-sized gold mine

Billions of dollars from mainland China may soon flow into Hong Kong, as more Chinese companies are likely to upgrade to primary listings in the city to tap into the wealth of capital, as the threat of U.S. delistings drives them to secure their funds.

The money spigot turned on after ecommerce giant Alibaba announced on Tuesday that it would apply to convert its Hong Kong secondary listing into a dual primary listing to be completed by the end of the year, giving it dual primary listings in Hong Kong and New York. The move would make it easier for mainland Chinese investors to buy the company’s shares, and may attract anywhere between $16 billion to $21 billion worth of Chinese capital, per estimates from Goldman Sachs and Sanford C. Bernstein, respectively.

• Daniel Zhang (张勇 Zhāng Yǒng), Alibaba Group chairman and CEO, stated that the change was aimed at “fostering a wider and more diversified investor base to share in Alibaba’s growth and future, especially from China and other markets in Asia.”
• Alibaba completed a secondary listing in Hong Kong in November 2019, following its $25 billion IPO in New York in 2014 — the biggest one in history at the time.
• But the company’s shares have plummeted in the last two years, thanks to stiff competition and Beijing’s heavy-handed regulatory crackdown on Chinese technology companies.

Many Chinese tech behemoths are expected to follow: An upgraded listing in Hong Kong would allow them to apply to be included in the city’s Stock Connect scheme that links the city’s bourse with the Shanghai and Shenzhen exchanges, and thus would provide access to mainland investors who trade Hong Kong–listed stocks.

• Ecommerce giant JD.com, gaming and media honcho NetEase, and China’s leading search engine, Baidu, are rumored to be following Alibaba’s move.
• Chinese online grocer Dingdong has begun preparations for a dual primary listing in Hong Kong only a year after its $95.7 million IPO in the U.S. Video-streaming platform Bilibili said in May that it had done the same, and hoped to have the deal completed by October 3.
• Last year, Chinese electric vehicle firms Li Auto and XPeng opted for dual primary listings in both the U.S. and Hong Kong. “I would say our Hong Kong listing is a very strategic decision. In it, I think obviously, you know, hedging against geopolitical risks is only one of the considerations,” Brian Gu (顾宏地 Gu Hongdi), the president of XPeng, told CNBC.

A dual primary listing would help protect the flow of capital for Chinese firms that may be forced to delist from U.S. exchanges within three years if they don’t allow U.S. regulators to view their audit records. China and Hong Kong are the only two jurisdictions that do not allow the inspections.

• As of Tuesday, more than 150 Chinese companies have been added to the U.S. Securities and Exchange Commission list of entities facing possible expulsion from U.S. exchanges after they filed their annual reports. Alibaba is not yet on the list as the ecommerce conglomerate only released its fiscal year 2022 report on Tuesday.

The billions in funds would provide a much-needed boost to Hong Kong’s struggling stock market: This year, the Hang Seng Index has fallen 12% and the Hang Seng Tech Index has sunk 19% so far.