(Bloomberg) — Faced with the risk of losing Wall Street investors, a growing number of Chinese tech companies are seeking an onerous way to tap money back home: a primary listing in Hong Kong.
Bilibili Inc. said this week it will convert its Hong Kong listing to dual-primary status from secondary by early October. The change would enable the firm to be included in the exchange’s Stock Connect program, which gives mainland investors access to trade its shares. The video-streaming firm is joined by peers including online real estate broker KE Holdings Inc. and drugmaker Zai Lab Ltd. in pursuit of the shift.
“The overall benefit is the access to the Southbound Connect,” said Vivian Lin Thurston, a portfolio manager at William Blair Investment Management. Mainland capital’s “investments to these names may offset the potential reduction of global investment as a result of ADR delisting to some extent.”
A dual-primary listing on the Hong Kong Exchange is often more costly and requires stricter reporting rules than a secondary listing. Still, the recent actions highlight the urgency of Chinese companies seeking new investors ahead of possible delisting from American exchanges.
The U.S. Securities and Exchange Commission has been expanding the list of Chinese firms that may face expulsion unless Beijing allows better access to the businesses’ financial audits. Bilibili, JD.com Inc. and Pinduoduo Inc. were among dozens of firms newly added this week.
The few pioneers who have dual-primary listings have already attracted some inflows from China. In less than three months after electric vehicle makers XPeng Inc. and Li Auto Inc. joined the trading links, onshore investors added 1% stakes in each company, exchange data show.
To be sure, any boost to share prices from mainland inflows is yet to be seen. XPeng and Li Auto have both underperformed the Hang Seng Tech Index after joining the trading links in February and March, respectively.
Companies also need to meet certain criteria on their listing period and market capitalization to be included into the Stock Connect link with the mainland. Moreover, trading turnover in the U.S. is still much higher than in Hong Kong for most dual-listed companies.
Still, the potential pressure on liquidity by losing American investors will at least be eased by attracting mainland capital, said Bruce Pang, head of macro and strategy research at China Renaissance Securities (HK). Pang expects about $42 billion to be raised by U.S.-listed Chinese companies in Hong Kong through 2023 by both secondary and primary listings.
“Big tech companies with sensitive data will continue to schedule secondary listing or dual primary listing in Hong Kong as backup plans amid regulatory uncertainties,” Pang said.
Tech Chart of the Day
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(Adds share moves in last paragraph.)
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