Didi’s exit from New York tests Hong Kong’s mettle as the listing sanctuary for Chinese stocks

Name: Why China is tightening control over cybersecurity
Uploaded: 2021-12-04T04:00:25.000Z
Duration: 7 min 30 s
Description: Why China is tightening control over cybersecurity

A Hong Kong listing could be a shot in the arm for the local stock exchange where fundraising has slowed down in the third quarter

Despite the red carpet, tech companies that face regulatory action in China are likely to be heavily scrutinised by HKEX during their IPO application process

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Didi’s headquarters in Beijing. The firm is likely to seek a dual-primary listing in Hong Kong and will be subject to regulatory scrutiny on par with the US bourses. Photo: AP

Georgina Lee,Enoch YiuandIris Ouyang

Published: 12:00pm, 4 Dec 2021Updated: 12:48pm, 4 Dec 2021

The US delisting of Didi Chuxing could offer a test case for whether Chinese companies being investigated by Beijing would be welcomed in Hong Kong, which is ramping up stock market reforms to keep up with US bourses.

Didi said on Friday on its Weibo account that it had started preparing for delisting from the New York Stock Exchange (NYSE) and listing on the exchange in Hong Kong. The embattled ride-hailing operator did not, however, provide further details, such as a timeline or how it proposed to proceed with its listing in Hong Kong.

A Hong Kong listing could be a shot in the arm for the Hong Kong stock exchange, where fundraising in the third quarter of this year stood at its lowest level since the first quarter of last year, when the Covid-19 pandemic hit the market. The Hong Kong bourse, however, still ranked third globally, after Nasdaq and NYSE, for the 10 months to October.

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Why China is tightening control over cybersecurity

In its latest bid to promote its IPO market, HKEX announced in November that it would adopt issuer-friendly reforms to attract more Chinese issuers to list closer to home. These new rules, for example, will allow companies with a minimum valuation of HK$3 billion (US$386 million) after five years of listing in the US to qualify for secondary listings in Hong Kong, a drastic reduction from the current minimum threshold of HK$40 billion.

Beijing-based Didi will not qualify for a secondary listing, as its five-month-long listing in New York falls short of Hong Kong’s two-year minimum requirement for such a flotation. It is likely to seek a dual-primary listing in Hong Kong, if this happens before its US stocks are delisted. Such a listing will be subject to regulatory scrutiny on par with the US bourses, industry players said.

An imminent Hong Kong listing will give Didi’s US investors more avenues for cashing out, as they will be able to convert their American depository receipts into Hong Kong shares, as the two will be fully interchangeable. It will also help Didi establish a new listing home ahead of the implementation of the US’s Holding Foreign Companies Accountable Act, which will force foreign companies to delist from US exchanges if they fail to turn over audit results for three straight years, a window that is expected to expire by late 2023.

“US-listed Chinese companies will be better off starting their Hong Kong listing plans well ahead of the 2023 deadline. The longer they wait, the worse off will be the valuations they get from a second listing in Hong Kong, as the queue of listing applicants there lengthens,” said Bruce Pang, China Renaissance’s head of macro and strategy research.