Explainer | Explainer: what is a secondary listing, who qualifies and what does Alibaba’s plan mean for holders of its ADRs?

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.”