After Alibaba announced on Tuesday that it is considering applying for a dual-listing in Hong Kong, its Hong Kong-listed stock gained 6% before tumbling slightly.
Its shares are already traded on U.S. and Hong Kong bourses, but it’s a secondary listing in Hong Kong.
A press release from the company stated that it expects to finish the primary listing process before the end of 2022.
New rules have been implemented by the Hong Kong Exchange, which will make it easier for companies to obtain dual primary listings in the Chinese financial hub. According to Reuters, Alibaba is reported to be the first large company to benefit from the rule changes.
“We have received approval from the Board to apply to add Hong Kong as another primary listing venue, in the hopes of fostering a wider and more diversified investor base to share in Alibaba’s growth and future, especially from China and other markets in Asia,” this statement was made by Daniel Zhang, the chairman and CEO of Alibaba Group, is quoted in a press release.
Last time Alibaba’s stock was increased by 5.52%.
This is a ‘strategic move’
Because the Hong Kong market hasn’t provided Alibaba with as much liquidity as the U.S. market, Ronald Wan, chairman of Partners Fintech Holdings, said the move was “very strategic.”
“We need something else, we need Stock Connect to bring in mainland investors to invest in the stocks,” he said on CNBC’s “Street Signs Asia” on Tuesday.
With a Hong Kong primary listing, Alibaba will be able to participate in the Shenzhen-Hong Kong Stock Connect, which enables its shares to be traded in mainland China.
Chinese electric vehicle manufacturers Xpeng and Li Auto have dual primary listings in Hong Kong and the U.S., and have both been included in the stock connect scheme.
China Renaissance reported in January that, from historical data, secondary listings in Hong Kong are much slower to change and move than ADRs in the U.S.
In the United States, these American depositary receipt (ADR) serve as proxy shares for foreign companies listing in the U.S.
Despite the ongoing U.S.-China dispute over accounting issues, Wan said Alibaba is preparing itself.
A dispute over audits has threatened to delist Chinese companies listed on U.S. exchanges. U.S. and Chinese regulators have been working to resolve it.
“In case something goes really wrong … Alibaba can shift its primary listing status back to Hong Kong and still enjoy a reasonable liquidity in terms of stock trading,” he said.
“I think it will be a good move to the company and to its investors as well,” he added.