Is a situation impassable or impossible? It turns out to be both in Alice in Wonderland in the Disney film, when the cartoon doorknob tells Alice that she is too big to get through the entrance.
The conundrum is similar for China’s largest ride-hailing company as it searches for a bourse on which to sell its shares. Didi Global also seems to be going through the looking glass after its US shareholders finally agreed to a delisting plan this week. The normal trajectory is for a company to move from an over-the-counter market to a public one, not the other way around.
Didi has been forced to depart the New York Stock Exchange (NYSE) in hope of forging an agreement with China’s national cyberspace agency. Its shares will trade off-exchange until Didi meets data security requirements in China, at which point company executives hope to list in Hong Kong instead.
The group has had a miserable time in the capital markets since it astonished the Chinese government by ploughing ahead with a $4.44 billion IPO last June in New York. Beijing had signalled that it wanted a delay and it retaliated by announcing a regulatory probe within a few days of Didi’s debut, blocking it from signing up new customers in China.
The regulatory retribution contributed to a $7.74 billion net loss for 2021 and Didi’s share price tanked once it became clear that it had lost official favour in China. From a peak of $80 billion on July 1 last year, its market capitalisation had splintered to $6.99 billion as of May 24, 2022.
Other companies are trying to make a similar shift in the share markets. NYSE-listed Full Truck Alliance (known as Manbang locally; see WiC545) also hopes to list in Hong Kong, for instance, but has been forced to put plans on hold by another regulatory review.
Didi and Full Truck Alliance are part of a larger group of 270 or so Chinese companies facing the prospect of having to leave US exchanges because of a dispute over the rights of the US Public Company Accounting Oversight Board (PCAOB) to inspect their audits.
As we wrote in WiC577, Hong Kong should be the biggest beneficiary of US legislation that delists every single Chinese company unless they comply with PCAOB regulations. Most are hedging their bets on a potential resolution of the audit dispute by planning secondary or primary dual listings in the city. However, most have chosen to sit and wait rather than actively raise cash in Hong Kong. Those that do move ahead are often opting for listings by introduction, which gets them onto the exchange but does not actually raise new capital. Examples include electric vehicle manufacturer NIO, which began trading in March.
As a result, Hong Kong’s bourse hasn’t had the start to 2022 that it hoped for. A mere 17 companies have raised HK$14.9 billion ($1.9 billion) from IPOs between January and March – the worst quarter in years.
Announcing the first quarter results in late April, Hong Kong Exchanges & Clearing (HKEX) CEO Nicolas Aguzin outlined that the pipeline was stuffed with potential new listings, however, with 150 active applications (the Financial Times says 146 are from Greater China). They include major US-listed stocks such as Softbank-backed property group KE Holdings, which announced plans for a dual primary listing in early May, as well as Tencent Music Holdings, which wants to do a secondary one. Others waiting on a decision include: video platform iQiyi, online broker Futu Holdings, employment portal Kanzhun and budget retail chain Miniso.
Companies have held off on raising cash because of valuations depressed by economic slowdowns and Covid lockdowns, plus regulatory uncertainty. But Aguzin is keen to emphasise Hong Kong’s credentials over the longer term as a super-connector to China. The city is China’s offshore fundraising hub, he says, and it will build on share-trading links with the bourses in Shanghai and Shenzhen by launching new products such as Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs).
All the same, the current geopolitical climate is “very, very challenging” for his mission of connecting China and the world, Aguzin acknowledged to the FT in Davos this week.
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