China’s most ambitious and fastest-growing companies once flocked to U.S. markets to raise money. Now rising U.S. hostility and the increased attractions of listing closer to home are tipping the scales toward Hong Kong and Shanghai.
Since November, eight Chinese companies that originally went public on the New York Stock Exchange or the
Stock Market have added listings in Hong Kong, raising a total of $25.6 billion, according to Refinitiv. These companies, with a combined market capitalization of nearly $1 trillion, include e-commerce giant
Alibaba Group Holding Ltd.
Yum China Holdings Ltd.
, China’s biggest restaurant operator.
The pace of such partial migrations has picked up this summer, as tensions between the U.S. and China have escalated, and more are likely to follow, bankers, analysts and investors say. The companies are maintaining their U.S. listings, but having stock traded in Hong Kong is a safety net if they have to leave exchanges in New York.
Chinese companies are being pulled toward home and pushed away from the U.S. at the same time. American policy makers are threatening action that could lead to Chinese firms being delisted if U.S. regulators aren’t able to scrutinize their accounting more closely.
The prospect of U.S. delistings is part of the “relatively slow-motion but developing ‘financial war’ between the United States and China,” said George Magnus, a research associate at Oxford University’s China Centre. Mr. Magnus, an economist and author, said it showed how “politics is trying to decouple the financial systems” of the two countries, citing other areas of tension such as U.S. public-sector investment in Chinese assets and talk of cutting China off from international payment systems.
Alibaba and other U.S.-listed firms that have sold shares in Hong Kong flagged the increased scrutiny of China-based companies, as well as the risk of being delisted or cut off from U.S. capital markets, in their regulatory filings.
Various other Chinese companies are preparing to go public in Hong Kong or Shanghai, including financial-technology giant Ant Group Co., whose combined IPOs on both exchanges could raise more than $30 billion, The Wall Street Journal previously reported. U.S. investors would have to buy the stock in Hong Kong.
The emergence of a large listed tech sector, plus IPOs of scores of other Chinese stocks, dovetails with the ambitions of China’s leaders, who aim to buttress Hong Kong and Shanghai as major financial hubs and attract more global capital. It also benefits the investment bankers handling the deals, as well as exchanges and brokerages.
“With higher trading volume, more large Chinese tech companies will likely list in Hong Kong this or next year, rather than in the U.S.,” said Tucker Highfield, co-head of equity capital markets for the Asia Pacific region at
Bank of America Corp.
China’s Biggest Firms: Now
Market value in billions, as of Sept. 22
Thomas Gatley, an analyst at Gavekal, a financial research and money-management firm based in Hong Kong, said: “The biggest winner probably is the financial sector in Hong Kong and Shanghai.” He added: “It’s also good for mainland investors who haven’t had access to large swaths of the fastest-growing part of the economy.”
The Shanghai exchange started its own Nasdaq-style market for technology company listings last year, drawing nearly 180 IPOs. Most stocks have soared; their combined value is roughly 722 billion yuan, or the equivalent of $106 billion.
In July, China’s top foundry,
Semiconductor Manufacturing International Corp.
, made its debut on the STAR market. It raised 53.2 billion yuan, the equivalent of $7.79 billion. SMIC, as it is known, went public on the New York Stock Exchange in 2004 and delisted from the Big Board last year.
China’s Biggest Firms: Five Years Ago
Market value in billions, end of 2015
Bank of China
Jixun Foo, a managing partner in Shanghai at GGV Capital, an international venture-capital firm, said more large Chinese tech groups are likely to follow Ant in pursuing dual listings in Hong Kong and Shanghai.
Nisa Leung—managing partner at Qiming Venture Partners, which focuses on China’s telecoms, media and technology sector as well as health care—said 20 portfolio companies intend to file for IPOs in the next 20 months, with most eyeing Hong Kong or Shanghai.
Relaxed listing requirements in recent years in both markets have been a boon, she said. “When we invested in these companies a few years back, we had expected the exit to be after they became profitable,” she said, but now listings are possible even before companies start recording sales.
For China, a substantial locally listed tech sector is also a status issue. “There’s clearly a sense in Beijing that the time is right for them to claim their rightful place in the world, and financial markets are a very visible part of that,” said Mr. Gatley, of Gavekal.
From 2010 to 2019, China’s flagship Shanghai Composite Index suffered a lost decade, even as the economy grew apace and stock benchmarks elsewhere surged.
China’s Biggest Firms: 10 Years Ago
Market value in billions, end of 2010
Bank of China
Over the past 10 years, however, the most valuable Chinese companies listed offshore have multiplied in value, led by Alibaba and Hong Kong-listed Tencent Holdings Ltd., a Chinese social-media giant and the world’s largest videogame company by revenue. The duo are now among the world’s 10 largest companies by market capitalization.
Technology is also becoming increasingly sensitive, as shown by the U.S. and China both imposing export restrictions. Rocky Lee, a Beijing-based partner at law firm King & Wood Mallesons, said that for Chinese technology companies, a domestic listing could make complying with regulations in different jurisdictions more manageable.
The draw of a U.S. listing remains strong for some Chinese companies. Markets in Hong Kong and mainland China can’t match the U.S. for the sheer sums available to be invested, or for the ease with which investors can accumulate or dispose of large positions without the market moving too much against them.
Mr. Foo at GGV said the U.S. was still attractive for some companies whose business was well understood by Western investors, particularly given that listed companies typically have continuing funding needs. “It has a deeper pool of capital, more financing options such as convertible bonds and investors who are familiar with these products,” he said.
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