Xpeng gets the green light for Hong Kong IPO, extending city’s dual listing process to attract companies to raise capital

Xpeng, one of the three New York-listed Chinese electric-car makers, has received the green light to sell shares through a second initial public offering (IPO) in Hong Kong, extending the city’s dual primary listing mechanism to attract global fundraising.

The Guangzhou-based carmaker received the go-ahead from the listing committee of the Hong Kong Exchanges and Clearing Limited (HKEX) for an IPO comparable in size to the US$1.1 billion stock sale it mounted in New York, according to two sources familiar with the matter.

The carmaker is represented by JPMorgan Chase, Bank of America-Merrill Lynch and Credit Suisse, the same banks that handled the listing of its American depositary receipts in August 2020, one of the sources said. Spokespeople of the HKEX and all three banks were not immediately available to comment. Xpeng’s spokeswoman declined to comment.

The stock offer, coming less than a year after Xpeng raised funds, is considered a dual primary listing, which subjects the carmaker to the regulatory oversight of both the US Securities and Exchanges Commission (SEC) and the Hong Kong Securities and Futures Commission (SFC). It is a more rigorous listing process than a secondary listing, where the regulator in the first listing venue has the primacy in oversight.

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The creation of the dual primary listing process adds another choice to HKEX’s service options, as it competes with New York, Shanghai and Shenzhen to be the world’s preferred IPO destination, a distinction Hong Kong has claimed in seven out of the previous 12 years. In the first quarter of this year, Nasdaq grabbed the lead from Hong Kong, with 81 listings in the three-month period, almost triple the 29 IPOs on the main board of HKEX, according to Refinitiv data.

Xpeng’s P5 on display during the Auto Shanghai 2021 motor show

Xpeng will not be the first company to be dual-listed in the US and Hong Kong. That distinction goes to pharmaceutical company BeiGene, which raised US$182.2 million in New York in 2016, before selling HK$7.08 billion (US$912 million) worth of shares in Hong Kong in 2018.

Shares from primary listings in Hong Kong get a faster admission into the so-called Stock Connect transborder investment channel, which allows companies quicker access to funds from wealthy mainland Chinese investors and institutional funds.

The new listing mechanism also provides an easier avenue for Xpeng to raise much-needed capital to finance its research, development and production of electric cars in the world’s largest vehicle market. The Guangzhou-based carmaker counts this newspaper’s owner, Alibaba Group Holding, and Xiaomi’s founder, Lei Jun, among its shareholders.

Xpeng listed in New York with a weighted voting rights (WVR) structure that has three classes of shares with different voting rights. The structure will change to two classes when it lists in Hong Kong to meet local regulatory requirements.

According to the filings, Alibaba, through Taobao China, held about 178.62 million class C shares of the company, or 11. 1 per cent of its total issued share capital, with each share having five votes. These shares will be converted to class A shares on an one-on-one basis, with each share having one vote.

The conversion is needed because Hong Kong’s listing rules only allow a director to own WVR shares, and do not allow shareholders that are not directors or any corporate shareholders to own WVR shares.

Taobao China will be able to reinstate the class C shares with five votes per share in future, when the listing rules in Hong Kong change to allow corporate shareholders to own WVR shares, according to the filing.

He Tao, one of the founders of Xpeng who has 20 million class B shares that have 10 votes per share, will also convert his stake into class A shares. He will resign as a director, the filing said.

He Xiaopeng and Xia Heng, the other two co-founders and directors of the company, own a combined 409.85 million class B shares. Their holdings represent 25.6 per cent of the total issued share capital of the company.

The company listed on the New York Stock Exchange in August last year. It announced the construction of a new plant in Wuhan in April this year. Xpeng already has manufacturing plants in Zhaoqing in Guangdong province and Zhengzhou in Henan province.

Xpeng, named after He Xiaopeng, also began exporting electric cars to Norway. It announced a plan to fit its P7 all-electric coupes with lidar sensors, becoming the world’s first passenger car to use the light-based radar for greater precision in autonomous driving.

“We are seeing immense potential in the smart electric car market in China. Under the robust leadership of co-founder He Xiaopeng, Xpeng Motors has laid out its smart vehicle vision, bringing an unparalleled mobility transformation beyond its achieved excellence in electric vehicles,” said Neil Shen, the founding and managing partner of Sequoia Capital China.

Author: Enoch Yiu, Peggy Sito, South China Morning Post