Alibaba stock has been battered in 2021.
Greg Baker/AFP via Getty Images
stock hit a record low in Hong Kong Thursday amid fears that the Chinese e-commerce giant may be forced to lose its primary listing in New York.
Reports suggested that Chinese regulators will restrict companies’ abilities to list overseas, raising the prospect that Alibaba and other groups may be forced to ditch their listings on the New York Stock Exchange or Nasdaq.
‘s Hong Kong-listed shares (ticker: 9988.H.K.) dropped 2.5% Thursday to their lowest level since the company launched its secondary listing in Asia in 2019. The company’s U.S. stock (BABA) rose 2% in the premarket trade, having fallen near 4% Wednesday.
The latest development on the regulatory front concerns variable interest entities (VIEs)—a corporate structure used by Alibaba and other Chinese companies to list offshore and sidestep Beijing’s rules concerning foreign investment.
Must read: Beijing Could Add Pressure to U.S.-Listed Chinese Stocks. What It Means for Investors.
China is planning to ban companies from going public overseas using the VIE structure, Bloomberg reported Wednesday, citing anonymous sources, though Hong Kong would be an exception subject to regulatory approval.
The plans could be finalized as soon as this month, according to the report, and may require companies already listed overseas via VIEs to revamp ownership structures and be more transparent. This could mean that the most sensitive companies—for instance, Alibaba—may be required to delist in the U.S.
China’s securities regulator has denied Bloomberg‘s report.
VIEs are also under scrutiny from U.S. regulators. Gary Gensler, the chair of the Securities and Exchange Commission, has warned that U.S. investors may not fully realize the nature of their stakes in U.S.-listed Chinese securities. American investors who buy Alibaba stock in fact own a stake in an offshore shell company that has a contractual relationship with the Chinese operating entity.
Shares in Alibaba have collapsed by more than 45% this year amid a regulatory crackdown by Beijing on the country’s tech sector and, more recently, signs of slowing growth at the company. The U.S.-listed stock is trading at its lowest level since spring 2017.
While there remain reasons to be bullish on Alibaba, this year has proved a wild ride for investors. Some experts have suggested that the worst of the regulatory crackdown may be over—but that hasn’t stopped investors fretting about the future of Alibaba.
Write to Jack Denton at firstname.lastname@example.org