after the dual primary listing, can alibaba usher in a major valuation turnaround?

arts｜deng shuanglin, reporter of "chinese entrepreneurs"

edit｜yao yun

header photography｜deng pan

ali accomplished something big.

august 28,alibabathe dual primary listing in hong kong has officially come into effect, with the secondary listing status on the hong kong stock exchange being changed to the primary listing status.the announcement shows that after the dual primary listing officially takes effect, alibaba's common shares listed on the hong kong stock exchange and american depositary shares listed on the new york stock exchange can be continuously converted. the dual primary listing does not involve new share issuance and financing.

alibaba has a deep connection with hong kong. when it was first founded, it was registered in hong kong. in 2007, alibaba's b2b business was listed on the hong kong stock exchange with the stock code 1688. around 2013, the first choice for alibaba's overall ipo was the hong kong stock exchange, but due to restrictions on relevant regulations at the time, it eventually went to the new york stock exchange for listing. in 2019, alibaba conducted a secondary listing in hong kong.

since its secondary listing, most of alibaba's publicly traded shares have been transferred to hong kong. in terms of market capitalization and trading volume, alibaba has always ranked among the top hong kong stocks.

it is worth noting that hong kong is newly added as a dual primary listing location, which is a different concept from secondary listing.a secondary listing refers to a company listing the same type of shares in two places, achieving cross-market circulation of shares through international custodian banks and securities brokers, mainly in the form of depositary receipts; while a dual primary listing means that both capital markets are the first listing place, and all regulatory requirements of both markets must be met at the same time.

although dual primary listings will face stricter supervision and higher costs and operational complexity, their share price performance is relatively independent and may result in price differences. if conditions are met, they can be included in the hong kong stock connect to expand the investor base.

the issue that the market is most concerned about is whether alibaba can enter the hong kong stock connect.morgan stanleyaccording to analysis, if alibaba completes its primary listing by the end of august, it is expected that the inclusion of hong kong stock connect will be confirmed on september 4, announced on september 6, and take effect when the market opens on september 9. morgan stanley predicts thatafter being included in the hong kong stock connect, southbound funds may add approximately us$12 billion in incremental inflows to alibaba's hong kong stocks in the first six months.

kuang yuqing, founder of lens consulting, told china entrepreneur that alibaba's dual primary listing in hong kong will allow more international capital outside the united states and funds from mainland china to have the opportunity to participate in the investment process, which is of great significance for improving long-term valuations in the future.

for alibaba, whose stock price continues to be sluggish, inclusion in the hong kong stock connect may be a "life-saving straw".

dual primary listing may become the mainstream of chinese concept stocks

alibaba's dual primary listing plan has been full of twists and turns.

in 2018, the hong kong stock exchange issued new rules to allow companies with dual-class share structures with "different voting rights for the same shares" to be listed. in november 2021, the hong kong stock exchange revised its listing rules again to expand the acceptance of dual primary listings. alibaba responded quickly and issued an announcement eight months later in july 2022, proposing to add hong kong as a primary listing location and dual-list in hong kong and new york.

but two months later, alibaba issued another announcement, which stated that due to the need to formulate a new employee stock ownership plan, the dual primary listing would not be completed by the end of 2022 as originally planned.

this delay lasted for a year and a half.

as late as may this year, alibaba mentioned in its 2024 fiscal year performance report, "we have been preparing for a major listing in hong kong, and we currently expect to complete the conversion by the end of august 2024." at the earnings conference on august 15, alibaba cfo xu hong revealed that after the shareholders' meeting passed the proposal, alibaba expects to complete the conversion to a major listing in hong kong by the end of august 2024. "as for how to access the hong kong stock connect in the future, we still have to fulfill some procedures under the different rules of each exchange. we should follow the procedures and it can be achieved."

it is worth mentioning that before alibaba,bilibili、zai lab、shell、zhihu、minisomany chinese concept stocks have chosen to return to hong kong for dual primary listing.compared with the previous "secondary listing wave" of chinese stocks returning to hong kong, dual primary listing seems to have become a more mainstream approach.

there is no absolute advantage or disadvantage between dual primary listing and secondary listing. the choice depends on the company's needs and the regulatory policies of the listing location.the advantages of dual primary listings are that they expand the investor base and attract investors from different regions; financing in multiple markets increases the flexibility of capital operations, and can also reduce dependence on a single market and diversify market risks.

for today's chinese concept stocks, dual primary listings can be included in the hong kong stock connect and reduce the risks brought by geopolitics to a certain extent, which is equivalent to grasping more certainty in an uncertain environment. therefore, even if the listing process is complicated and costly, chinese concept stocks are still seeking to add hong kong as a primary listing place.

it is understood that, like other dual-primary listed companies in hong kong, thishong kong exchanges and clearing limitedalibaba was also granted some exemptions: alibaba was allowed to use us generally accepted accounting principles (gaap) to prepare its financial statements; alibaba has a governance structure "based on director nomination rights" and is regarded as a company with a different voting rights structure. the hong kong stock exchange granted an exemption allowing the company not to strictly comply with shareholder protection regulations regarding temporary vacancies of directors, removal of directors, and requirements for convening special general meetings of shareholders; the options granted under alibaba's 2024 plan will involve options convertible into american depositary shares (ads), and these options will still be denominated in us dollars and the exercise prices will also be expressed in us dollars.

can inclusion in the hong kong stock connect repair valuations?

alibaba believes that the most serious problem at present is that its valuation is seriously underestimated.

at the beginning of this year, jack ma and joseph tsai significantly increased their holdings in alibaba. joseph tsai's family foundation increased its holdings of alibaba shares worth $150 million, and jack ma also increased his holdings in the same period, but did not disclose the specific amount.

at the company level, alibaba is also increasing its repurchase efforts: in the first quarter of fiscal year 2025, it has invested $5.8 billion to repurchase 613 million common shares; in the past fiscal year 2024, alibaba has invested a total of $12.5 billion in repurchases, ranking first among chinese concept stocks in terms of repurchase scale. as of june 30, 2024, alibaba still has a repurchase quota of $26.1 billion under its share repurchase plan, which is valid until march 2027.

the founder and alibaba are both using actions to prove that they believe alibaba's valuation has not yet returned to a reasonable track, but the effect of the buyback has not yet been clearly reflected in the stock price.

for alibaba, the addition of a primary listing in hong kong and the possibility of inclusion in the hong kong stock connect may be a historic moment of salvation. previously, due to restrictions on secondary listings, mainland investors were unable to directly participate in alibaba's trading on the hong kong stock exchange. after inclusion in the hong kong stock connect, it means that more mainland investors who are familiar with alibaba's specific business can buy it.

kuang yuqing believes that returning to hong kong for a dual primary listing will be "all beneficial and no harmful" to alibaba at present.

"alibaba is not short of money and its capital needs are not huge. listing in hong kong will not solve many business problems. alibaba mainly wants to hedge against some potential risks brought by geopolitics through dual primary listings, and at the same time it can also use this to better repair its valuation," kuang yuqing analyzed.

according togoldman sachsthe latest research report on august 27: it is expected that the completion of the dual primary listing will pave the way for alibaba to be included in the hong kong stock connect list on september 9 this year, and may bring in potential capital inflows of us$15 billion to us$16 billion.

morgan stanley research report pointed out that in the first six months after the inclusion of hong kong stock connect, the incremental inflow from southbound may be as high as us$12 billion, accounting for about 7% of alibaba's total outstanding shares. in the long run, this percentage may stabilize in the low-teens percentage of total shares. according to morgan stanley's calculations, including tencent,meituan, xiaomi, kuaishou, etc., southbound funds’ holdings account for an average of 11% of the total share capital of these companies.

according to a research report by glodon, if we extrapolate based on the stabilization of tencent's hong kong-shenzhen stock connect shareholding ratio (i.e. 10%), and alibaba's current market value of hk$1.45 trillion as a base, the hong kong-shenzhen stock connect may continue to provide alibaba with incremental market value contribution in the future, and the corresponding scale will reach hk$145 billion.this is a huge amount of potential incremental funds considering alibaba’s current market value.

alibaba is expected to be included in the hong kong stock connect, which has prompted many institutions and investors to take action.many institutions, including hhlr under hillhouse capital, increased their holdings. hhlr bought 5.24 million shares of alibaba, a 3638.32% increase from the previous quarter, making it the third largest holding, and its share in the investment portfolio increased from 0.02% in the previous quarter to 5.98%. h&h international, owned by the well-known investor duan yongping, reduced its holdings of apple, its super-heavy holding, in the second quarter and increased its holdings of alibaba and occidental petroleum, increasing their holdings by 7.9% and 35.97% respectively. alibaba is currently its fourth largest holding.

being included in the hong kong stock connect may be a "life-saving straw", but if alibaba wants to obtain a high valuation, it still has to rely on its business to break through.

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