These 3 US-listed Chinese stocks file for Hong Kong IPOs
The US Senate recently passed a bill that could force Chinese companies to withdraw their shares from US stock exchanges. If the bill becomes law, Chinese companies will have to prove they are not owned by the Chinese government and open their books to the nonprofit Public Company Accounting Oversight Board (PCAOB).
The bill still needs to be approved by the House of Representatives and signed into law by President Trump, but it has broad bipartisan support. Therefore, it is not surprising that several large Chinese technology companies, including Ali Baba (NYSE: BABA), JD.com (NASDAQ: JD)and NetEase (NASDAQ: NTES) – all have recently filed new Hong Kong IPOs.
Let’s examine the movements of these three companies in Hong Kong, and whether or not American investors should avoid their shares listed in the United States.
Alibaba originally planned to go public in Hong Kong last August, but it postponed the listing due to escalating protests in the region. It completed the offer in November, more than five years after its IPO in New York.
It issued 500 million new common shares and an over-allotment of 75 million shares to raise about $13.8 billion, marking the largest listing of the year. The IPO diluted its total shares, which are split between its New York and Hong Kong investors, by less than 3%.
Alibaba recently assured its US investors that it would not pull its shares from the NYSE and believed it could comply with any new regulatory requirements. Chief Financial Officer Maggie Wu said Alibaba would “closely monitor” the bill, but it’s unclear whether the tech giant will ever fully open its PCAOB accounts.
JD.com, Alibaba’s biggest rival in the Chinese e-commerce market, also went public in the United States in 2014. JD recently filed a secondary offer for 133 million new ordinary shares, of which 126.35 million of US-listed shares offered internationally and 6.65 million shares. in Hong Kong – which will be worth roughly the same as their US-listed ADS counterparts.
JD’s secondary offering could raise up to $4 billion and dilute its existing shares by nearly 5%. He is expected to complete the offer on June 18, which coincides with his 22nd birthday and the last day of his annual “618” vacation.
JD has not yet commented on a possible delisting in the United States, but it could further strengthen its ties with Hong Kong with an IPO for JD Logistics Later this year. However, JD also recently filed another IPO for its Dada Nexus online grocery subsidiary in the United States, suggesting that it is not giving up on New York just yet.
NetEase, the second largest game company in China after Tencent (OTC: TCEHY)went public in the United States in 2000. It recently offered a global offering of 171.5 million shares, but only 3% will be allotted to Hong Kong investors, with the remainder being offered to international investors on June 11.
NetEase expects to raise around $2.8 billion with its new IPO, diluting its existing shares by around 5%. The shares will also not be sold at a significant discount to its US-listed shares.
In 2001, NetEase was nearly delisted NASDAQ due to allegations of fraud and a failed annual report, but he overcame these growing pains and became a reliable indicator of the gaming industry in China. NetEase has yet to comment on the latest Senate threats, but its recent spinoff of its online education unit Youdao (NYSE: DAO) in New York suggests he won’t be pulling out of the United States any time soon.
The threat of a mass exodus of Chinese stocks from US exchanges is alarming, but I doubt the bill will pass in its current form as it would seriously harm US investors, funds and exchanges.
It’s no surprise to see Chinese companies filing secondary IPOs in Hong Kong as safety nets, but they probably won’t be rushing to pull their shares from US exchanges, which still generate far more cash than the Hong Kong Stock Exchange.
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