Alibaba Group Holding, which operates the world’s largest e-commerce platform, is seeking to raise up to US$15 billion in Hong Kong, becoming the first company to win approval for a secondary listing on the city’s exchange under new listing rules that came into effect last year.

Here is what you need to know about this new secondary listing regime.

1). Who is qualified to apply for a secondary listing under the new listing regime?

  • Only companies involved in “innovation,” with at least two years of listing status on the New York Stock Exchange, Nasdaq or premium listing on the London Stock Exchange, are qualified. They must be capitalised at no less than HK$10 billion (US$1.27 billion).
  • If their shareholding structures are based on weighted voting rights (WVR), and they are based anywhere in Greater China, they need to have at least HK$1 billion in revenue in the most recent financial year, if they are capitalised at less than HK$40 billion at the time of the secondary listing.

Alibaba, listed on New York Stock Exchange since September 2014, is well qualified as it is the world’s seventh largest company, capitalised at US$486.8 billion on November 12.

Clement Chan Kam-wing, managing director of accounting firm BDO, said these requirements are set in a way for the Hong Kong Exchanges and Clearing Limited (HKEX) to ensure these companies are well qualified, and are already listed in a well-regulated market.

“The regulations in the US and UK can offer good investor protection,” Chan said. “In addition, the Securities and Futures Commission (SFC) has a cooperation agreement with both regulators in the US and UK, which would ensure regulators can work together to safeguard the interests of shareholders.”

2). Are there regulatory differences between companies seeking secondary listings and those seeking primary listings in Hong Kong?

  • Hong Kong’s new listing regime allows companies that have been listed in the US or in the UK for at least five years, and with the minimum market capitalisation, to file their secondary listing plans on confidential basis. This is different from other primary listings that require applicants to disclose their fundraising plans on the HKEX website.

Alibaba’s primary regulator remains the US Securities and Exchange Commission (SEC), to which the company must file all relevant documentation and information.

If the trading volume of Alibaba’s Hong Kong-listed shares exceeds 55 per cent of the company’s worldwide trading volume, Hong Kong would become the company’s primary market, and the SFC in Hong Kong would become the primary regulator, Chan said.

3). What happens to the shareholders of Alibaba’s US-traded American Depository Receipts (ADRs)?

The ADRs in the US are fully fungible with the Hong Kong-listed Alibaba shares. But in terms of trading, they are different pools of financial securities. ADRs can only be traded in the US, while Hong Kong-issued shares can only be bought or sold on the city’s exchange.

“It is similar to the situation with HSBC shares, which are traded in London and Hong Kong. Investors can arbitrage between the two markets so their share prices would be similar,” said Joseph Tong Tang, chairman of Morton Securities. “Alibaba shareholders who want to shift their holdings to Asia can sell their shares in the US to buy shares in Hong Kong. Some shareholders may do this to take advantage of trading Alibaba during Hong Kong’s market hours.”


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