Hong Kong can take advantage of any ‘mass delisting’ of Chinese firms in US, Financial Secretary Paul Chan says

  • Hong Kong could capture ‘at least 90 per cent’ of delisted Chinese firms’ market capitalisation, Chan tells Post seminar
  • Several New York-listed Chinese companies have been tipped for secondary listings in the city

Hong Kong’s capital market could expect a boost from Chinese firms seeking listings closer to home amid intensified scrutiny in the United States, Financial Secretary Paul Chan Mo-po said on Wednesday.

A potential “mass delisting” of Chinese companies in the US had put the city in an advantageous position, as the government estimates that about 240 companies currently listed in America would fall into a category facing potential delistings, Chan told a seminar organised by the Post.

“The attitude of the US towards those mainland companies listed as American depositary receipts (ADRs) would probably drive them – at least a significant portion of them – to come back to this part of the world,” he said. “I think Hong Kong is in a very good position to take advantage of that.”

His comments followed disclosures last week that five Chinese companies that have ADRs trading in the US had been named in a list of foreign companies liable to US accounting inspection law. Among these, four – including Yum China, which operates the KFC and Pizza Hut fast-food chains in China – were also listed in Hong Kong.

The disclosures were triggered by the implementation of the Holding Foreign Companies Accountable Act, which will force foreign companies to delist from US exchanges if they fail to turn over audit results for three straight years. The law will see the US Securities and Exchange Commission delisting non-compliant foreign stocks by as early as late 2023.

There are currently about 250 Chinese firms listed in the US. Many of the bigger US-listed Chinese internet and technology giants, such as Alibaba Group Holding, JD.com and Baidu, have already opted for secondary listings in Hong Kong over the past two years. Alibaba, which owns the Post, raised US$13 billion in its November 2019 secondary listing.

If these firms chose Hong Kong as a listing venue to hedge against the risk of being delisted from their primary exchanges in the US, the city could capture “at least 90 per cent” of their market capitalisation, Chan said.

“Our initial analysis is that if they come to Hong Kong – some have already come back – for a secondary listing or a direct listing, we would be able to capture at least 90 per cent of the market cap,” he said. “That would be a boost for our market.”

Chan did not elaborate on how many US-listed Chinese companies under his “90 per cent” market cap estimate could actually qualify for a Hong Kong listing. But a research report by brokerage China Renaissance released in January suggests that about 80 of the 250 Chinese companies – representing 90 per cent of all ADRs’ market capitalisation – could satisfy the listing requirements of Hong Kong Exchanges and Clearing, either for a direct listing or a secondary flotation.

Several New York-listed Chinese companies have been tipped for secondary listings in Hong Kong. These include streaming platform iQiyi and Chinese cloud-computing firm Kingsoft Cloud, which said this week that it was considering a dual listing in the city.

Nasdaq-listed short video platform Bilibili, which listed in Hong Kong in March last year through a secondary listing, said on Wednesday evening in a Hong Kong exchange filing that it would pursue dual-primary listing status on the city’s bourse.

The benefits of a dual-primary listing include potential inclusion in the Stock Connect schemes, a mutual market access mechanism that allows mainland Chinese investors to trade Hong Kong stocks and vice versa. This option is not available to companies listed through secondary flotations.

Author: Georgina Lee, SCMP

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