By Tanner Brown
AFP via Getty Images
While Hong Kong’s future may be plagued by mainland China’s seemingly increasing disregard for the territory’s independence and the resumption of pro-democracy protests, signs point to it remaining an IPO hotspot for Chinese businesses and for those eyeing a second listing away from the U.S.
Though a trend has been underway for some time in which Chinese companies choose Hong Kong over New York — or embarking on secondary listings in addition to their Big Apple market presences — the trend may get a boost for a number of reasons. And, at least in the short term, these attractions seem to be outweighing any wariness caused by the financial hub’s political turmoil.
E-commerce titan Alibaba Group /zigman2/quotes/201948298/composite BABA -0.68% , which in 2014 made the then-biggest-ever IPO splash in New York, established a similarly colossal secondary listing last year in Hong Kong /zigman2/quotes/215112034/delayed HK:9988 -0.16% , raising more than $11 billion.
Alibaba rival JD.com /zigman2/quotes/205122565/composite JD +2.41% is now following a similar path. It listed in the U.S. in 2014 but recently filed for a secondary offering in Hong Kong , seeking to raise HK$31 billion ($4 billion). The deal may go through as early as next week.
There are also murmurs that affiliate JD Logistics will file for an IPO in Hong Kong in the coming months, as well.
China’s second largest gaming giant, NetEase /zigman2/quotes/201683625/composite NTES +1.60% , listed on the Nasdaq in 2000, but will begin trading Thursday in Hong Kong, likely raising HK$21 billion ($2.7 billion).
Digital medical-services provider WeDoctor, backed by Chinese online mega-firm Tencent /zigman2/quotes/207908563/delayed TCEHY -0.83% , is planning to file its Hong Kong IPO before the end of the year, looking to raise just under $1 billion . The listing would value the health-care platform at more than $5 billion.
The rush of notable listings or re-listings in Hong Kong is being ushered forward by policy changes.
The city has tempted companies in part by easing standards for inclusion on its benchmark Hang Seng index /zigman2/quotes/210598030/delayed HK:HSI -0.56% , allowing secondary listings and companies with unequal voting rights. This should be especially attractive to Chinese tech businesses, which often have weighted voting rights.
Meanwhile, the elephant in the room is the U.S. threat to delist Chinese firms that don’t meet revised disclosure requirements. The U.S. Senate recently passed legislation that would ban listings in the U.S. if audit watchdog PCAOB is unable to inspect the work of companies’ auditors for three years in a row. The bill would also require companies to disclose whether they are “controlled by a foreign government,” a term most interpret as meaning Beijing.
If the U.S. House and President Trump green light the Senate legislation, more than 200 mainland Chinese and Hong Kong firms listed in the U.S. would be required to meet the new standards or delist.
Though none of the U.S.-listed companies mentioned above have said they intend to delist, their movements back home will dilute their American shares to varying degrees, and NetEase specifically cited the U.S. policy threats as a motivating risk factor in its Hong Kong prospectus.
All of this seems to be offsetting, if not overshadowing, the Asian metropolis’s troubles. A year ago this week, the city erupted in protests at a proposal that would allow extradition from Hong Kong to the mainland. Those protests took a pause during the coronavirus pandemic, but they are back with a vengeance now, just as Beijing looks to impose a national-security law that many fear would cripple Hong Kong’s remaining independence.
While some financial companies based in the city have expressed concern, others have fallen in line.
London-based HSBC Holdings /zigman2/quotes/208272822/composite HSBC -0.48% and Standard Chartered PLC /zigman2/quotes/200125072/delayed UK:STAN -4.12% expressed support for China’s national-security law. The acquiescence caused a stir among those troubled by Beijing’s encroachment, even prompting a major investor in both banks to speak out publicly.
“We are uneasy at the decisions of HSBC and Standard Chartered to publicly support the proposed new national security law in Hong Kong without knowing the details of the law or how it will operate in practice,” said David Cumming, the chief investment officer for equities at Aviva Investors, said Tuesday, the Wall Street Journal reported.
Tanner Brown covers China for Barron’s and MarketWatch.