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Why are Hong Kong stocks listed in Jingdong and Netease back to Hong Kong not a shares?

via:CnBeta     time:2020/6/10 8:21:08     readed:1347

In the face of the tighter US control over Chinese enterprises and the open arms of the Hong Kong stock exchange, more and more Chinese companies are going home. After Alibaba went back to Hong Kong for listing last year, Netease and Jingdong recently decided to go to Hong Kong for secondary listing. Twenty years ago, Netease hit the bell of listing on Nasdaq, becoming the first batch of Internet companies to list in the United States.

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China capital stock is now returning to Hong Kong for listing

In 20 years, Netease's share price has climbed from $2.63 on the first day of closing to more than $400, with a market value of more than $50 billion. Twenty years later, the bell of Netease's listing will ring on the Hong Kong stock exchange, becoming the second Chinese company listed in Hong Kong after Alibaba.


According to the prospectus disclosed by Netease on June 2, Netease issued 171.48 million new ordinary shares on the main board of the Hong Kong stock exchange. On June 7, the final selling price of Netease was set at HK $123.00 per share. By this calculation, Netease's Hong Kong listing raised 21.092 billion Hong Kong dollars. With the approval of the Hong Kong stock exchange, the shares are expected to be traded on the main board of the Hong Kong Stock Exchange on June 11 under the stock code 9999.

It's a little slower than Netease. On June 8, Jingdong announced on the Hong Kong stock exchange that it would launch a public offering of 133 million shares in Hong Kong at 9 a.m. on June 8, with the highest public development price of HK $236 per share. It's expected to be priced on June 11 and formally traded on the Hong Kong Stock Exchange at 9 a.m. on June 18, with the share code of 9618.

It is not only Netease, Jingdong, Baidu, pinduoduo, tal, New Oriental and other zhonggai stocks that have come to Hong Kong for listing. In May 21st, Baidu founder Robin Li said, "we are really concerned about the fact that the United States is tightening control over the stock taking companies. We are also constantly discussing what can be done internally, including these two listings in Hongkong and other places, of course.

However, pinduoduo, tal and New Oriental denied going back to Hong Kong for secondary listing. A spokesman for pinduoduo said that the company's cash flow is healthy. Up to now, the capital reserve and income growth are enough to allow "10 billion subsidies" to last for many years, so there is no secondary listing plan. In recent years, pinduoduo has been mixed in the US stock market. As of the closing on June 8, pinduoduo's share price has risen 94.29% since the beginning of the year. At one time, its market value exceeded that of Jingdong, twice that of Baidu, and was frequently increased by institutions.

Why do Netease and Jingdong return to Hong Kong for listing?

The document disclosed by Netease gives the answer: if the Accountability Act for foreign companies is passed by the U.S. House of Representatives and signed by the U.S. president, investors may be uncertain about the affected Issuers (including Netease), so the market price of American Depository Receipts of Netease may be adversely affected. Netease may delist from Nasdaq if it fails to meet the inspection requirements of the accounting supervision committee of American listed companies imposed by the act in time.

Jingdong also mentioned this in its June 8 prospectus.

On May 20, local time, the US Senate passed the Accountability Act for foreign companies. It stipulates that any foreign company fails to comply with the auditing requirements of PCAOB (Public Company Accounting Supervision Committee of the United States) for three consecutive years, and will be prohibited from listing its securities on the United States stock exchange.

Although it still needs to go through the process of the house of Representatives passing the bill and the US President signing the bill, pan Xiangdong, chief economist of new era securities, said to zhongxin.com that from 2019, the U.S. restrictions on Chinese stocks have been increasing continuously, which makes it difficult for the discriminated Chinese stocks in the United States.

"The increasing regulatory policy of the United States has discriminated against China concept stocks, and the Accountability Act undoubtedly shows its attitude towards the increasing regulation of China concept stocks." "In addition, Ruixing's financial fraud will not only bring serious legal consequences to itself, but also affect the reputation of CICC in the United States," Pan said

Recently, NASDAQ Exchange, the "preferred place" for domestic technology companies to list in the United States, proposed to the SEC to revise the listing rules. The proposal mainly includes three points: if there is any doubt about the audit quality of the company, it is possible to adopt more stringent listing standards for such companies; it is required that the amount of capital raised by the company to be listed from the restricted market shall be at least 25 million US dollars or one quarter of the market value after listing; the management of the company in the restricted market shall meet the additional requirements such as relevant experience of the company listed in the United States.

"Enterprises can raise funds when they go back to Hong Kong for listing. Compared with the "sniper attack" in the United States, the stock price fluctuates greatly, and the return to Hong Kong can also play a role in stabilizing the stock price. " Chen Zunde, general manager of Guangdong Fande Investment Co., Ltd., told chinanews.com. In addition, there are Alibaba's successful cases in front of us. In the case of capital chasing, the stock price will have a short-term upward momentum.

HKEx opens the door for China capital stocks

"This year will be an important year for initial public offerings, including large-scale IPOs from China, many of which we call backflow from the US." Li Xiaojia, chief executive of the Hong Kong stock exchange, said recently.

Li Xiaojia indicated that the U.S. listed shares that are intended to be listed in Hong Kong have met the conditions for listing in Hong Kong, including technology companies. "At present, the atmosphere in the United States has become less friendly, and we have fundamentally reformed many aspects of the listing system to make us more flexible."

Before the reform of IPO policy of HKEx, many Chinese companies chose to go to the United States for listing due to the restriction of corporate governance and dual equity structure. For example, Alibaba was listed on the New York Stock Exchange on September 19, 2014.

"The return of medium cap stocks will also optimize the structure of Hong Kong Stock Industry and enhance the voice of" new economy "companies in the Hong Kong stock market; Hong Kong stock is the" valuation depression "of the global stock market. If more high-quality American medium cap stocks return in the future, the overall valuation of Hong Kong stocks will be significantly raised; at the same time, the trading activity of Hong Kong stocks will be enhanced." Guangfa Securities said.

Influenced by the return tide of Chinese stocks, Hong Kong stocks continued to perform strongly in June, and the Hang Seng index returned to 25000 points, successfully achieving "seven consecutive positive".

Why not return to a share?

Most of the Chinese stocks returned around 2015, such as 360, perfect world, giant network, storm technology, etc., chose to return to a share. Why didn't all the stocks in this round choose to return to a shares?

Based on the analysis of GF Securities, on the one hand, the privatization delisting cost of medium cap stocks with complex ownership structure and high proportion of foreign shareholders is high; on the other hand, if there is a vie structure, the return of medium cap stocks to A-shares by "dual listing / second listing" is also limited.

"Vie structure" is a mode adopted by many enterprises for listing in the United States. It refers to the establishment of a wholly-owned subsidiary in China by an overseas listed entity. The wholly-owned subsidiary does not actually carry out its main business, but controls the business and finance of the domestic operating entity through an agreement, so that the operating entity becomes a variable interest entity of the listed entity. Different rights of the same share mainly refer to two kinds of shares that can be issued by enterprises with different degrees of voting rights, so that the management can obtain more voting rights.

"Technology and emerging consumer companies enjoy an overvalued premium in Hong Kong stocks, which is very attractive for the US and China stocks. In addition, Hong Kong shares are highly internationalized, with nearly half of the investors coming from overseas, mainly institutional investors, so the investment style focuses on long-term value. " Haitong Securities Analysis.

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