Another method to go public has gained traction in Hong Kong this 12 months, as Chinese language corporations transfer to move off the specter of a possible U.S. delisting, whereas market turmoil makes it laborious to boost new funds at enticing costs.
Shares in
NIO Inc.
started buying and selling Thursday in Hong Kong, after the Chinese language electric-vehicle maker concluded town’s first itemizing by introduction since late 2020. Listings by introduction are a manner of becoming a member of the general public markets wherein an organization doesn’t increase any capital or subject any new shares.
Hong Kong has hosted a handful of those listings yearly in recent times, stock-exchange information exhibits. However corporations are trying extra actively at this selection now, bankers and legal professionals say, given Chinese language corporations danger being booted off U.S. exchanges as quickly as 2024, whereas share costs have fallen sharply, with the Nasdaq Golden Dragon China Index down 58% in a 12 months.
“Itemizing by the use of introduction is a mirrored image of the market situation and the low share costs,” mentioned Kenneth Chow, co-head of Asia-Pacific fairness capital markets at Citigroup Inc.
OneConnect Monetary Expertise Co.
, a fintech agency managed by
Ping An Insurance coverage
(Group), filed for a list by introduction final month.
Didi International Inc.,
the embattled ride-hailing large that’s making ready to delist from the U.S., can also be searching for to record by introduction in Hong Kong.
Listings by introduction are just like direct listings, which have been used as a substitute for U.S. preliminary public choices in recent times by corporations reminiscent of
Coinbase International Inc.,
Palantir Applied sciences Inc.,
Spotify Expertise SA and others.
A string of U.S.-listed Chinese language corporations have listed in Hong Kong in recent times utilizing typical inventory choices, together with NIO’s rivals
XPeng Inc.
and
Li Auto Inc.
NIO mentioned becoming a member of the Hong Kong market allowed it to “additional develop our investor base and broaden our entry to capital markets.” The corporate didn’t tie the transfer to a possible U.S. delisting however flagged that danger in its itemizing doc. Additionally it is planning to record by introduction in Singapore.
NIO Chief Government William Li.
Picture:
/Bloomberg Information
NIO raised $2 billion in November by promoting inventory. The corporate’s shares have fallen 51% prior to now 12 months, FactSet information exhibits. NIO recorded a internet lack of $129.6 million for the third quarter of 2021.
Washington has began the clock on imposing a regulation that will delist Chinese language corporations if U.S. regulators can’t examine their audit papers for 3 years in row. Lawmakers within the Home and Senate have each individually handed laws to shorten the time-frame to 2 years, though the 2 chambers would want to move the identical invoice earlier than President Biden might signal it into regulation.
Listings by introduction can work for corporations created by the spinoff of a division of a bigger enterprise, and for corporations that, like NIO, have already got shares buying and selling in one other market.
Greater corporations could have a greater probability at having a list by introduction accepted by Hong Kong’s trade, mentioned Ivy Wong, Asia-Pacific chair of the capital-markets follow at regulation agency Baker McKenzie. “Greater corporations are inclined to have an extended monitor document in compliance and are extra doubtless to have the ability to fulfill the regulatory necessities,” she mentioned.
Listings by introduction can endure from skinny buying and selling volumes, since no new shares are issued.
In NIO’s case, the corporate and shareholder
Tencent Holdings Ltd.
will lend American depositary receipts equal to 2.7% of its Class A shares to banks, which is able to convert these securities into Hong Kong shares to assist make the market extra liquid. That block of shares is value about $835 million at Wednesday’s closing worth. Banks can borrow extra inventory if wanted.
“Firms that record by the use of introduction typically exhibit low aftermarket liquidity, which might, in some instances, make them extra simply vulnerable to arbitrage or worth manipulation,” mentioned Philippe Espinasse, a marketing consultant and former fairness capital markets banker, and the writer of a number of books on preliminary public choices. “When liquidity is low it doesn’t take a lot shopping for or promoting to maneuver costs,” he added.
Shares within the fruit distributor
Asian Citrus Holdings Ltd.
, which listed by introduction in 2009, have been suspended on their first day of buying and selling, with Hong Kong’s stock-exchange operator citing “disorderly market issues.”
David Webb,
an investor and market commentator, mentioned buyers had misunderstood a key monetary metric, and that the quantity of Asian Citrus inventory buying and selling in Hong Kong “was unusually small, which facilitated volatility.”
Firms might subject new shares later if the market turns into extra receptive.
Prudential
PLC listed by introduction in 2010 and final 12 months bought the equal of $2.4 billion of inventory in Hong Kong. Because the new shares began buying and selling on Oct. 4, a mean of roughly 248,000 shares have modified palms every day, based on FactSet, greater than 14 occasions the common within the earlier 12 months.
NIO’s newly listed inventory dropped 0.7% Thursday to 158.90 Hong Kong {dollars}, equal to $20.32, per share.
A NIO automobile at an auto present in Tianjin, China.
Picture:
Li Ran/Zuma Press
Write to Jing Yang at Jing.Yang@wsj.com and Dave Sebastian at dave.sebastian@wsj.com
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