On Tuesday, there was a gain of as much as 6.5% in the Hong-Kong listed shares of Alibaba, after the announcement of the Chinese tech giant about pursuing a dual primary listing. However, it ended up trimming some of the gains, as the stock had risen by 4.82% by the end of the trading session.
Dual primary listing plans
The shares of the technology giant are already trading in both Hong Kong and the United States exchanges, but it has a secondary listing in Hong Kong that it now wishes to change into primary. Alibaba disclosed in a press release that it expects the process of obtaining a primary listing in Hong Kong to be complete by the end of 2022.
There was a recent change in the rules of the Hong Kong Exchange, which has now made it easier for companies to obtain dual primary listings in the financial hub. Reports indicate that Alibaba is the first big company to take advantage of this rule change.
The chief executive officer and Alibaba Group Chairman, Daniel Zhang said that they had gotten approval from the Board for applying to get a dual primary listing in Hong Kong. He said that they want to foster a more diversified and wider investor base that can share in the growth and future of the company, particularly from China as well as other Asian markets.
According to market analysts, this move is a very ‘strategic’ one because Alibaba has not seen a lot of liquidity in the Hong Kong market, as in the US market. They said that they need something else to bring investors from the mainland and get them to invest in the stocks.
Mainland China investors will be able to access Alibaba’s stocks after the company obtains a primary listing in Hong Kong. This is because the company will then become a part of Shenzhen-Hong Kong Stock Connect. Li Auto and Xpeng are electric vehicle makers in China and they have obtained dual primary listings in both the US and Hong Kong. This means that they are also part of the stock connect scheme.
In January, a China Renaissance report asserted that historical data proves that the velocity and turnover of ADRs in the United States are significantly higher than that of companies that have a secondary listing in the Hong Kong market. ADRs refer to American depository receipts that are used as proxies for shares of foreign firms that are listed in the United States.
Meanwhile, China and the United States are also embroiled in an accounting dispute. The regulators of the two countries have been working to resolve the dispute, which has raised the risk of delisting for Chinese companies in the US. Analysts said that if something was to go wrong, Alibaba would have the option of shifting its primary listing to Hong Kong and continue to enjoy liquidity for stock trading. They think that this move by the e-commerce giant is a good one for the company and its investors.