Chinese tech giant Alibaba will convert its stocks listed on the Hong Kong Stock Exchange (HKEX) to a primary listing, from what has been a secondary one since 2019, effective this week on August 28.
Once completed, Alibaba will be dual primary listed on HKEX and the New York Stock Exchange (NYSE). The voluntary conversion doesn’t include issuance of new shares or fundraising activities, according to an August 23 announcement from the company.
A primary listing status will qualify Alibaba’s Hong Kong shares to be included in the Stock Connect programmes with Shanghai and Shenzhen Stock Exchanges in mainland China. Qualified mainland investors would then be able to invest in Alibaba via the southbound (mainland China to Hong Kong) connect schemes.
Average daily trading volume of southbound trading via the two Stock Connect schemes, where mainland investors trade Hong Kong-listed shares, recorded HK$37.5 billion ($4.8 billion) during the first half of 2024, up over 10% year-on-year, according to HKEX’s interim financial report.
An Alibaba spokesperson didn’t specify when the company expects its shares to be included in the connect programmes, when responding to a FinanceAsia enquiry. Such decisions would be subject to decisions from the Shenzhen and Shanghai Stock Exchanges, in addition to relevant regulatory authorities.
Alibaba’s decision to become dual primary listed in both Hong Kong and New York is not a new one.
Back in July 2022, the company issued a HKEX announcement that disclosed its application to the bourse for a primary listing conversion. The management’s main consideration was to enlarge its investor base and increase liquidity, as Alibaba holds “substantial” business presence in the greater China region.
The attempt didn’t go to plan, as it had estimated a completion of the conversion by the end of 2022. In a November 2022 filing, Alibaba attributed the delay to the need for a new employee stock ownership plan to meet HKEX requirements, saying that the new plan should “continue to be aligned with the company’s long-term developments and long-term shareholders’ interests”.
From January 1,2022, the HKEX implemented new rules regarding Hong Kong listings of overseas issuers, enabling those with non-compliant weighted voting right (WVR) or variable interest entity (VIE) arrangements to apply for dual primary listing in the city.
The new rules effectively laid out a clearer pathway for Alibaba, categorised as a company with a WVR structure, to convert into a primary listing.
Financials
Alibaba Group posted total revenue of Rmb243.2 billion ($33.5 billion) for the quarter ending June 30, 2024, with adjusted earnings (before interest, tax and amortisation) at Rmb45 billion. The company repurchased a total of 613 million ordinary shares, or equivalent to 77 million American depositary shares (ADS) for $5.8 billion during the quarter.
The results managed to meet analysts’ estimates. “However, messages from the earnings are mixed as higher future top-line growth will be offset by rising investments,” commented Chelsey Tam, senior equity analyst at Morningstar.
Key investments include those poured into its e-commerce business, both domestic via Taobao and Tmall Group and international, as well as into artificial intelligence and cloud computing.
The Hangzhou-headquartered tech giant has been through a series of internal reshuffles since last year, splitting up its business into subdivisions dedicated to areas including e-commerce, logistics, cloud intelligence and entertainment.
Its logistics arm, Cainiao, cancelled its much awaited IPO plan on HKEX in March, after a smilar IPO plan for the cloud intelligence was scrapped in late 2023.
The Alibaba news came as shares of rival Nasdaq-listed PDD, which owns e-commerce firm Temu, plunged 28.5% on August 26, wiping $55 billion off the total value of its shares, as it warned on the health of the Chinese economy.
In another move this week at a major Chinese e-commerce retailer JD.com announced on August 27 plans to repurchase $5 billion worth of stock between September 2024 and August 2027 in a HKEX filing. The news came after US giant Walmart sold $3.6 billion of JD.com stock, according to an August 20 announcement, ending a partnership that has lasted since 2016. Walmart is set to focus on its own growth plans in China.
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