Alibaba shares rose sharply, up as much as 6.5%, on Tuesday after the company said it will seek to split its stock in two and list one side on the Hong Kong market.
This company is traded in the United States and Hong Kong; the Hong Kong listing is a secondary one.
Alibaba’s Hong Kong-listed stock has jumped by as much as 6.5% today, before falling back to earth.
At the end of the day, the stock closed 4.82% higher.
Shares of the tech giant are already traded on the New York and Hong Kong exchanges, but the Hong Kong listing is a secondary listing.
The Hong Kong primary listing process is expected to be complete by the end of 2022, according to a press release.
The Hong Kong Exchange recently loosened its rules and as a result more companies have been able to obtain dual listings in the city. China’s Alibaba is apparently the first big-name company to take advantage of this rule change, according to Reuters.
According to the media release, we have obtained permission from the Board to list on Hong Kong as a new venue in order to have a broader and more diverse investor base that spans all regions of the world, specifically in China and the rest of Asia, said Alibaba Group Chairman and Chief Executive Officer Daniel Zhang.
The ‘strategic’ move
The move is strategic because the Hong Kong market does not offer Alibaba as much liquidity as the U.S. market, said Ronald Wan, non-executive chairman of Partners Fintech Holdings.
“We need Stock Connect to bring mainland investors into the market,” he told CNBC’s “Street Signs Asia” on Tuesday.
A Hong Kong primary listing will allow Alibaba to be included in the Shenzhen-Hong Kong Stock Connect, giving investors in mainland China access to the stock.
Chinese electric vehicle manufacturers Xpeng and Li Auto have dual primary listings in Hong Kong and the U.S., and have both been included in the stock connect scheme.
China Renaissance’s January report stated that the change of share ownership and movement for companies with a Hong Kong secondary listing is significantly less than for those with American Depositary Receipts.
ADRs are American depositary receipts that represent shares of foreign companies listed in the United States.
Despite the ongoing U.S.-China dispute over accounting issues, Wan said Alibaba is preparing itself.
Chinese and U.S. regulators are working to resolve an audit dispute that threatens to delist Chinese companies on U.S. exchanges.
“If something goes wrong, Alibaba can shift its primary listing status back to Hong Kong, and still enjoy a reasonable level of liquidity,” he said.
“I think it will be a good move for the company and for its investors as well,” he concluded.