Alibaba plans primary listing in Hong Kong to boost liquidity and attract Chinese money

The move is expected by year-end and will grant investors in mainland China direct access to the e-commerce company for the first time

The Alibaba Group logo at its office building in Beijing. Reuters

Alibaba Group will seek a primary listing in Hong Kong, entrenching the financial hub’s status as an alternative to US markets and paving the way for investors in China to directly buy shares of the country’s most prominent e-commerce company for the first time.

On Tuesday, Alibaba said it will apply to elevate its trading status in the Asian city, which will, in turn, allow the $285 billion company to seek inclusion in the Stock Connect link with the Shanghai and Shenzhen exchanges.

That could boost liquidity after a year-long sell-off triggered by China’s economic slowdown and close Beijing’s scrutiny of its powerful internet companies.

The move, expected by year-end, will grant hundreds of millions of investors in mainland China direct access to one of the country’s most storied names, which in 2014 made waves when it debuted in New York as the largest-ever initial public offering.

Alibaba’s action could encourage peers to follow suit, helping cement Hong Kong as an alternative venue now that US regulators are threatening to delist Chinese companies from US bourses unless they comply with auditing rules.

Alibaba rose as much as 4.5 per cent in Hong Kong, while bourse operator Hong Kong Exchanges and Clearing climbed more than 3 per cent. SoftBank Group, Alibaba’s largest shareholder, rose more than 3 per cent in Tokyo.

“This is a massive move for Alibaba, given it is the biggest secondary listing in Hong Kong,” said Willer Chen, an analyst at Forsyth Barr Asia. Inclusion in the Stock Connect “can lead to a more diversified investor base for Alibaba and let mainland investors have direct investment access to Alibaba via southbound trading”.

Alibaba has shed about two-thirds of its value since a 2020 peak. It currently has a secondary listing on the Hong Kong bourse, but has seen a rise in public float and transaction volume on the exchange there, it said in a statement on Tuesday. The company's average daily trading volume in Hong Kong was about $700 million, compared with about $3.2bn in the US.

HKEx chief executive Nicolas Aguzin said more companies with secondary shares in Hong Kong are considering primary listings, while others may be forced to do so by market rules as more of their volume migrates to the city.

The prospect of Stock Connect inclusion for companies like Alibaba has been the subject of intense speculation among traders in Hong Kong, which currently excludes companies with both secondary listings and weighted voting rights from its mainland trading links. It highlights the urgency to seek new investors ahead of possible delistings from exchanges in the US.

“Alibaba’s move might point to internet companies preparing for a fallback position, in case they have to delist from the US,” said Redmond Wong, market strategist at Saxo Capital Markets.

While some market participants had hoped the exchange would relax the rules that bar such companies, a primary listing is emerging as an alternative path. This month, Bilibili won shareholders' approval to convert its secondary Hong Kong listing status to dual-primary, while Zai Lab completed the procedure in June.

A dual-primary listing on the Hong Kong Exchange is often more costly and requires stricter reporting rules than a secondary listing. Unlike companies with a primary listing in Hong Kong, firms with a secondary listing in the city are exempted from certain rules and don’t have to disclose things such as financial guarantees provided to affiliates and stock pledges made by the controlling shareholder.

Other Chinese companies have opted to list directly in Hong Kong under dual-primary status. That was the case for electric vehicle makers XPeng and Li Auto, which began trading in the Asian financial hub over the past year.