Alibaba Group Holding has announced it will change its listing in Hong Kong, a technical move that will allow the tech giant to sell shares to China’s 220 million investors.
The Hangzhou-based company, whose shares have been listed in New York since 2014 and in Hong Kong since 2019, will receive dual primary listing status on the Hong Kong Stock Exchange from August 28, up from its previous secondary listing status, it said in a statement on Friday.
The new designation would qualify Alibaba’s shares for the Stock Connect cross-border investment channel when the Shenzhen and Shanghai bourses meet on Sept. 5 to consider what should be added to the program. Alibaba, one of China’s biggest tech giants with a value of HK$1.58 trillion (US$202.7 billion) before its Hong Kong listing, is highly likely to make the cut, clearing the way for mainland investors – those with at least 500,000 yuan (US$70,089) in assets – to get their first bite out of the stock on Sept. 9 at the earliest.
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“It will definitely give a tailwind to Alibaba’s stock, and inject liquidity” into the stock, said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “It makes a big difference in terms of whether shares can be traded through Stock Connect.”
Alibaba’s shares rose 0.7 percent to a three-month high of HK$82.20 in Hong Kong after the announcement. The city’s market benchmark Hang Seng Index fell 0.6 percent.
Alibaba Group Holding’s IPO ceremony in Hong Kong on November 26, 2019, attended by the company’s then CEO, Daniel Zhang Yong (center). Photo: Sam Tsang alt=Alibaba Group Holding’s IPO ceremony in Hong Kong on November 26, 2019, attended by the company’s then CEO, Daniel Zhang Yong (center). Photo: Sam Tsang>
The journey of Alibaba’s stock to New York and back to China’s doorstep was 10 days shy of a decade in the making. The company’s founders had long lamented that Alibaba, which makes most of its revenue in China, couldn’t share its capital gains with the country’s legions of stock investors.
“The main reason for us to go ahead with the dual primary listing is that we want to tap into the capital flows south through the Stock Connect program,” Alibaba co-founder and chairman Joe Tsai said in an interview in May. Alibaba owns the Post.
It’s also good news for a struggling company that has lost more than 70 percent of its market capitalization since hitting a record high in October 2020. Morgan Stanley forecast that participation in the connect scheme could attract $12 billion in investment into the stock within six months.
The move would also boost the role of mainland investors on Hong Kong’s $5 trillion stock market, where they already account for about a third of the exchange’s daily turnover. Chinese capital is estimated to own about HK$2 trillion worth of stocks, including bellwethers such as video game publisher Tencent Holdings, HSBC and China Mobile.
There are precedents for the successful designation change. Shares of Tuhu Car, a Shanghai-based auto maintenance company, rose 26 percent a month after being listed in the Stock Connect in April. Shandong Hi-Speed Holdings rose 16 percent the following month after qualifying in March.
The connect program was launched in 2014 and has become a popular channel for Chinese investors looking to diversify their domestic investments. Global investors can also dive into China’s US$8.2 trillion stock market through the program’s so-called northbound channel.
Retail investors in Chinese stocks, who outnumber Communist Party members, will be locked out of the shares of many Chinese companies listed offshore until they are included in the Connect scheme. In addition to Alibaba, online retailer JD.com and search engine Baidu have yet to join Connect. Tencent, delivery giant Meituan and smartphone-to-device maker Xiaomi are already accessible through the scheme.
Alibaba has risen 8 percent this year in Hong Kong, a fraction of Tencent’s 29 percent gain, partly due to a lack of investor support in its home market. Alibaba’s shares are also cheaper, trading at 9.7 times estimated earnings compared with Tencent’s 15.8 times multiple.
In a bid to boost investor confidence and increase valuation, the company has expanded its share buyback program. In the most recent quarter ended June, Alibaba spent US$5.8 billion buying back its own shares, Tsai said at the annual general meeting on Thursday. The company bought back US$12.5 billion of its own shares in the fiscal year ending March 2024, after spending US$10.8 billion in fiscal 2023.
“We believe that the current share price does not reflect the intrinsic value of the company. Therefore, we will of course be very constructive in our approach to share buybacks at current price levels,” Tsai said.
Rising Alibaba shares could also lift the Hong Kong market, as the stock is the third-largest component of the 82-member Hang Seng Index, with a weighting of 8.1 percent, behind HSBC and Tencent. Its U.S. depositary receipts are valued at US$202 billion, the equivalent of the Hong Kong listing, data compiled by Bloomberg shows.
The shares are currently down 73 percent from their all-time high on October 28, 2020, battered by years of government clampdown on the tech industry and stiffer competition from rivals such as budget e-commerce platform operator PDD Holdings. Revenue for the quarter to June slowed to 4 percent year-on-year, with its core e-commerce unit down 1 percent, underscoring how the largest corporate shakeup intended to revive growth has yet to prove successful.
According to Qin Heping, an analyst at Guotai Junan Securities in Shenzhen, Alibaba’s bid to get a spot on the Stock Connect is a sign that the company has doubled its returns to shareholders, in addition to its $65 billion share buyback plan.
“It’s going smoothly,” Qin said. “That will improve liquidity and serve as another catalyst for the stock.”
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit the SCMP Facebook page and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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