Alibaba stock hit a record low in Hong Kong on Thursday amid fears the Chinese e-commerce giant would be forced to lose its primary listing in New York.
Reports suggested that Chinese regulators would restrict the companies’ abilities to list overseas, raising the possibility that Alibaba and other groups could be forced to drop their listings on the New York Stock Exchange or Nasdaq.
Alibaba’s Hong Kong-listed shares (ticker: 9988.HK) fell 2.5% on Thursday to their lowest level since the company began its secondary listing in Asia in 2019. The company’s US stock (BABA) rose 1% in premarket trade, falling close to 4% on Wednesday.
The latest development on the regulatory front pertains to convertible interest entities (VIEs) – the corporate structure used by Alibaba and other Chinese companies to list and do away with Beijing’s regulations relating to foreign investments.
Sure Beijing may increase pressure on US-listed Chinese stocks. What that means for investors.
China is planning to ban companies from going public abroad using the VIE structure, Businesshala reported on Wednesday, citing unnamed sources, although Hong Kong would be an exception subject to regulatory approval.
According to the report, the plans could be finalized as soon as this month, and may require companies already listed abroad through VIE to improve ownership structures and be more transparent. This could mean that the most sensitive companies—for example, Alibaba—may need to be delisted in the US.
China’s securities regulator has denied Businesshalareport of.
VIEs are also under scrutiny from US regulators. Securities and Exchange Commission Chairman Gary Gensler has warned that US investors may not be fully realized The nature of their holdings in Chinese securities listed in the US. US investors who buy Alibaba stock actually own a stake in an offshore shell company that has a contractual relationship with a Chinese operating entity.
Alibaba shares have fallen more than 45% this year amid a regulatory crackdown by Beijing on the country’s tech sector, and more recently, there are signs of slowing growth at the company. The US-listed stock is trading at its lowest level since spring 2017.
While reasons remain bullish on Alibaba, this year has proved to be a wild ride for investors. Some experts have suggested the worst regulatory action may be over — but that hasn’t stopped investors from worrying about Alibaba’s future.
And not everyone agrees that the Chinese regulator is pressured and dusted.
In a report published Thursday, analysts Ernon Cui and Thomas Gatley of the research group Gawekal Dragonomics explained why they believe “China’s regulatory crackdown on Internet companies is not over.”
Gavekal’s team noted that much of Beijing’s action has focused on data protection, which US-listed companies like Alibaba—which holds personal data on millions of Chinese citizens—could be grateful to US regulators.
“For all the concerns regarding data security, there is still not much clarity on what behavior regulators are concerned about,” Cui and Gatley said. “Government agencies are also developing new areas of regulatory focus whose impact will not be clear for some time.”
Gavekal’s research shows that, while the initial antitrust investigations against China’s tech sector were not disastrous, legislative and bureaucratic structures are growing in power and scope to regulate competition.
According to Gawekal, with Beijing viewing internet regulation as essential to its long-term governance, companies like Alibaba have a long and growing list of responsibilities spanning personal data protection and censorship. Analysts said that in order to be in a better position to escape regulatory scrutiny, companies will need to take steps to meet regulatory demands, which are vague in nature.
“The risks are not decreasing,” Cui and Gatley said. “Investors waiting for a regulatory ‘all clear’ for the Internet sector will continue to be disappointed.”
Write to Jack Denton at [email protected]