Secondary Hang Seng listings open new front in US-China trade war

China’s largest online retailer JD.com will tomorrow become the latest in a growing roll call of Chinese companies seeking to raise funds through secondary IPOs on Hong Kong’s Hang Seng Index (HSI). Alibaba, phone maker Xiaomi and food delivery giant Meituan are also taking advantage of Beijing’s decision to allow Chinese businesses with primary listings overseas to be included in the benchmark HSI.
JD’s $4.05 billion secondary share sale comes on the heels of a similar move by online gaming giant NetEase which raised $2.7 billion, but both are eclipsed by Alibaba which has raised $11.2 billion.
NASDAQAt least 30 other Chinese companies currently listed in the US could soon join them in a ‘listing emigration’ that could attract up to $557 billion to the Asian financial hub, according to the Jefferies Hong Kong investment bank. “The bottom line is that the evolution of the Hang Seng Index over the next 18 months will largely shift the index to a pure China one with a significant tech, e-commerce and IT weighting,” it predicted earlier this week.
That transformation could accelerate if rumours that the Nasdaq is preparing to unveil new restrictions on IPOs turn out to be true. The new rules would require companies from some countries (including China) to raise $25 million through their IPOs, or at least a quarter of their post-listing market cap. If these rules had existed 20 years ago, 40 out of 155 of the Chines companies that have listed on the Nasdaq since 2000 would not have made the cut.
While Nasdaq will not cite Chinese companies specifically in the changes, the move is said to be largely driven by concerns surrounding some of the Chinese IPO hopefuls’ lack of accounting transparency. With US Secretary of State Mike Pompeo already praising the move and urging other exchanges to consider similar regulations, these proposals are almost certainly more than a rumour.
With Singapore beginning to flex its muscles too, new battle lines are being drawn.