Alibaba shares continue to fall as delisting issues increase. Here’s what you need to know.
shares are hammered amid fears the Chinese e-commerce giant may be forced to lose its main listing in New York.
Reports suggest Chinese regulators will restrict the ability of companies to list overseas, raising fears that Alibaba and other groups will be forced to drop their listings on the New York Stock Exchange or Nasdaq.
US-listed Alibaba stock (ticker: BABA) was down 10% on Friday and has lost nearly a fifth of its market value in the past five days alone; trading below $ 110, it is at its lowest since April 2017.
Hong Kong-listed stocks (9988.HK) fell 2.6% on Friday to a record low since the company launched its secondary listing in Asia in 2019.
It comes after a struggling Chinese rideshare company
(DIDI) on Friday announced plans to withdraw from the New York Stock Exchange and prepare to go public in Hong Kong. The company, which only went public in New York City in June, was targeted by China’s cybersecurity regulator for data security concerns days after its IPO.
Another recent development facing one of China’s largest companies concerns variable interest entities (VIEs) – a corporate structure used by Alibaba and other Chinese groups to list offshore markets and bypass trading rules. Beijing regarding foreign investment.
China plans to ban companies from going public overseas using the VIE structure, Bloomberg reported Wednesday, citing anonymous sources, although Hong Kong is an exception subject to regulatory approval.
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Plans to ban VIEs could be finalized as early as this month, according to the report, and could force companies already listed overseas through VIEs to reorganize ownership structures and be more transparent. This could mean that the more sensitive companies, for example Alibaba, could be required to delist in the United States.
Chinese securities regulator denied Bloombergreport of .
VIEs are also subject to close scrutiny by US regulators. Gary Gensler, chairman of the Securities and Exchange Commission, warned that U.S. investors may not fully realize the nature of their holdings in Chinese securities listed in the U.S. U.S. investors who buy Alibaba shares actually own a stake in an offshore shell company that has a contractual relationship with the Chinese operating entity.
The SEC on Thursday decided to finalize rules that could ban foreign companies from trading in the United States or be delisted if their auditors fail to open the books to U.S. regulators.
Alibaba shares have collapsed by more than 50% this year amid slower growth for the company. More generally, the entire Chinese tech sector has been hit amid a widespread regulatory crackdown by Beijing as President Xi Jinping tightened his control over the world’s second-largest economy.
Must read: Beijing could increase pressure on Chinese stocks listed in the United States. What this means for investors.
While there are still reasons to be optimistic about Alibaba, this year has been a wild race for investors. Some experts have suggested the worst of the regulatory crackdown may be over, but that hasn’t stopped investors from worrying about Alibaba’s future.
Not everyone agrees that Chinese regulatory pressure is done and dusted off.
In a report released Thursday, analysts Ernan Cui and Thomas Gatley of research group Gavekal Dragonomics explained why they believe “China’s regulatory crackdown on internet companies is far from over.”
Gavekal’s team notes that much of Beijing’s crackdown has focused on data security, including how US-listed companies like Alibaba, which hold personal data on millions of people. Chinese citizens, may be beholden to US regulators.
“Despite all the concerns about data security, there is still not much clarity on the practices that worry regulators,” Cui and Gatley said. “Government agencies are also developing new areas of regulatory interest, the impact of which will not be clear for some time.”
Gavekal’s research suggests that while the initial antitrust investigations against the Chinese tech sector were not catastrophic, the legislative and bureaucratic structures to regulate competition are gaining strength and scope.
While Beijing sees 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, according to Gavekal. And to be better positioned to avoid scrutiny from regulators, companies will need to take action to meet nebulous regulatory requirements, analysts said.
“The risks are not diminishing,” Cui and Gatley said. “Investors who expect ‘everything is clear’ regulatory framework for the Internet industry will continue to be disappointed.”
Write to Jack Denton at [email protected]