Nio leads way to alternate route for Hong Kong market listing

With little sign of tensions cooling between Beijing and Washington, Chinese companies listed in New York are turning to a shortcut to secure a backup position on the Hong Kong Stock Exchange.

On Thursday, shares of electric vehicle maker Nio are set to start trading in Hong Kong, just 11 days after the New York Stock Exchange-listed company disclosed its intention to establish a second market home.

Nio’s speedy move is a result of its use of a HKEX access channel for companies with an existing market home called “listing by introduction.”

While rarely utilized in recent years, Ping An Insurance Group subsidiary OneConnect Financial Technology said last week that it too had applied to list this way in Hong Kong. Didi Global is also reportedly considering the channel as part of its plan announced in December to delist from the NYSE in favor of Hong Kong.

A company does not issue or sell any new shares in a listing by introduction, which can make this method both faster and cheaper than a traditional fundraising listing, according to industry professionals.

With a conventional listing, a company would go through a monthslong process of selecting banks to run the fundraising, preparing sale documents, gauging appropriate pricing and taking orders for its shares. Underwriting fees are usually the biggest cost, at 1.5% to 3% of gross share sale proceeds.

Nio rival Li Auto, which raised $1.5 billion when it listed in Hong Kong last August, spent 240 million yuan ($38 million) on the effort, according to filings. Xpeng, another EV maker, raised $1.8 billion last July while spending 215 million yuan.

Nio, by contrast, is spending 58 million yuan on its Hong Kong listing, including legal and accounting fees, according to its exchange filing.

“The listing on the stock exchange may enhance our company’s profile in Hong Kong, facilitate investment by Hong Kong investors, enable our company to gain access to Hong Kong’s capital markets and benefit our company by exposing us to a wide range of private and institutional investors,” Nio said.

The moves by Nio and OneConnect come as Washington steps up pressure on U.S.-listed Chinese companies, Beijing nudges them to find places on markets closer to home and Hong Kong eases the way with revised rules to revive its listing pipeline.

 

Since last year, a series of state-owned companies including Semiconductor Manufacturing International Corp., China Mobile and CNOOC have been kicked off New York exchanges after Washington designated them as “military-linked.”

Dozens more Chinese companies face the prospect of ejection by 2024 under legislation closing off U.S. markets in cases where Washington regulators cannot access their accounting records, a sensitive issue due to Beijing’s secrecy laws.

With the added pressure of China’s data-security crackdown on Didi and others who listed in New York last year, as well as regulatory pressure on companies involved with tutoring, food delivery and other sectors, the Nasdaq Golden Dragon Chinese Index, a benchmark for U.S.-traded companies, has dropped by nearly two-thirds since February 2021.

As companies prefer to sell stock when their share price is high and rising to maximize proceeds and investor interest, observers believe Nio and OneConnect may not be missing much by holding off selling stock in Hong Kong.

“They may want to gain the listing status first and wait for global market conditions to improve before raising capital,” said Wilson Chow, who heads PwC’s global technology, media, entertainment and telecommunications advisory practice from Shenzhen.

“The current capital market is active but remains volatile due to ongoing external political issues and economic factors that can deter an issuer from selling its shares at a preferred valuation,” he added.

In its own filing, OneConnect, which provides software to financial institutions, said that adding a listing in Hong Kong to its existing NYSE foothold would help with “increasing the liquidity of our shares” and provide “ready access to these different equity markets when opportunity arises,” as well as align with its operational focus on China.

“With the stature and prestige of having the shares listed on the Hong Kong Stock Exchange, the company will enhance its competitive position in pursuing its growth strategy, particularly in Hong Kong and Southeast Asia, which the company believes is beneficial and will create value for its shareholders,” it said.

Didi did not respond to queries about its plans.

Junyi Zhang, who heads up the greater China automotive and private equity consulting practice of Oliver Wyman from Shanghai, said, “Too many uncertainties remain in U.S.-China relations, so becoming a listed company in Hong Kong is now a top priority for both Nio and Didi as speed is more important than fundraising at this stage.”

Since November 2019, 17 Chinese companies with their primary listings in New York have secured places on the HKEX, raising $42.22 billion in the process, according to data complied by information company Dealogic. Aside from Xpeng and Li Auto, five others made the move last year alone, including social media company Weibo in December.

Aside from Hong Kong, Nio has also applied for a secondary listing in Singapore.

Author: CISSY ZHOU, NIKKEI Asia