At noon on May 29, according to HKEx documents, NetEase had passed the HKEx listing hearing, while Bloomberg reported that JD.com had also submitted an application for listing to the Hong Kong Stock Exchange and had passed the listing hearing. Subsequently, NetEase founder and CEO Ding Lei issued a letter to all shareholders, said NetEase is preparing for a second listing in Hong Kong. BOE face to Caijing new media said it is not convenient for interviews.
Original title: NetEase, JD.com through the Hong Kong Stock Exchange listing hearing, a number of enterprises seeking to return to what?
One side is open, the other side is code-regulated. The listing site “the West is not bright or eastward”, more technology companies began to look to Hong Kong.
Wen , Caijing New Media Liu Yang
Edited . . . Jiang Shizhou
Earlier media reports said NetEase plans to raise up to $2bn for a second listing in Hong Kong on June 11, while JD.com will also list a week later on June 18, with a maximum of $3bn by selling a 5 per cent stake.
The return of Chinese shares has long been there, and with the changes in the international market, the return seems to be accelerating. Earlier, the Hong Kong Stock Exchange made a major overhaul, significantly lowering the listing standards for new economic companies and allowing companies with different rights to list, under which Alibaba, which lost its share son to the Hong Kong Stock Exchange, went public in late 2019. Now, with uncertainty in the U.S. capital markets, several Chinese Internet companies are considering a return to listing, and on May 21st Baidu founder Robin Li publicly told the media that he was discussing a second listing in Hong Kong and elsewhere. At the same time, Ctrip is also rumored to be listed in Hong Kong.
In this regard, Oriental Securities chief economist Yu Yu told Caijing new media reporters that a number of Chinese stock to go to Hong Kong to list the main reason is that the United States tightened the management rules for China’s shares, the choice of Hong Kong as a second listing, for enterprises is a PLAN B. “If public companies have problems in the U.S. market, they have at least one platform for sustainable financing. “
On the one hand, it is the induction of policy factors, on the other hand, it is the consideration of the enterprise itself. Tiger Securities investment and research team to Caijing new media reporter analysis, the return of Chinese stocks to Hong Kong stocks and the degree of strict supervision of the United States is not directly related, the company is an independent individual, excellent companies rarely from the regulatory worries, back to Hong Kong secondary listing is more important to disperse the risk of the secondary market, increase the influence in different markets, but also to bring new capital to the company’s development.
China General Stock Pile Hong Kong Listing?
JD.com “premeditated” for a long time, NetEase “believes in the power of love”
Earlier brokerage China reported that JD.com will list its prospectus on the Hong Kong Stock Exchange as soon as May 31 and start offering around June 4. In addition to leading banks such as UBS and Merrill Lynch, the group also included Chinese banks such as BOC International, BOCOM International and China Merchants International.
It is understood that jd.com’s second listing plan to Hong Kong has been “premeditated” for a long time. Earlier, it was reported that JD.com had planned to list for the second time in the first quarter of this year, but had to postpone the outbreak. Meanwhile, Mr Liu has stepped down from nearly 50 executive positions at his company since 2020, and several others have made changes during this period, a series of operations that have been interpreted as “preparation for a second listing”.
According to a february 11 filing with the Securities and Exchange Commission, Liu Qiangdong, founder, chairman and chief executive of JD,jonist and representative of JD.com directly and on behalf of JD.com, represents 78.7 percent of the voting rights. The choice of Hong Kong listing can also meet the need for different rights of the same shares.
From jd.com’s earnings, according to JD.com’s first-quarter 2020 results released on May 15, the company’s operating income was 146.2 billion yuan, up 20.75 percent year-on-year and higher than market expectations of 136.666 billion yuan. Under non-U.S. GAAP, the company’s net profit was $3 billion.
Internet analyst Qiu Yuanjun has analyzed that JD.com is currently in the market bullish stage, at least for a year will not change. Although JD.com has begun to make a profit, but for its business to develop is far from enough, Jingxi, logistics and other business sinking market, need a lot of capital investment. Expanding the second listing also provides a new channel for financing.
According to media reports, the same day to seek the Hong Kong Stock Exchange listing hearing of NetEase plans to complete the second listing in Hong Kong on June 11, and there is also news that NetEase will make a ipo in Hong Kong on Monday, June 1. It is understood that NetEase’s second listing in Hong Kong is expected to be between $1 billion and $2 billion, with Credit Suisse, JPMorgan Chase and CICC acting as co-lead underwriters to arrange the listing.
NetEase’s first-quarter 2020 results, released on May 20, showed that Q1’s net income was RMB17.06 billion, up 18.3% YoY, gross profit was RMB9.38 billion, up 21.2% YoY, and net operating profit attributable to the Company’s shareholders was RMB3.55 billion, up nearly 30% YoY.
NetEase is one of the pioneers of China’s early portals, and although it is now difficult to get in the front row of Internet companies, in recent years, NetEase’s achievements in games, e-commerce, education, music and so on can still be said to be excellent. According to financial reports and conference calls, NetEase Q1’s online gaming business net income was RMB13.52 billion, up 14.1% YoY, while the game business accounted for more than 80% of total revenue in the first quarter, NetEase Q1’s net income was RMB541 million, up 139.8% YoY, and NetEase’s Music revenue increased 128% YoY.
The indicators are higher than expected, not afraid of Hong Kong’s capital markets do not buy, which gives NetEase a second listing of the bottom line. In a letter to all shareholders, Ding Lei said that globalization is the inevitable choice NetEase will make on the basis of its own strength, and next, NetEase will be based in China, while through internal incubation, investment, cooperative development and strategic alliances, and other ways to continue to promote innovation and breakthroughs in overseas markets.
NetEase CEO Ding Lei letter to all shareholders Source: NetEase Supplied
In fact, NetEase sought a Hong Kong listing in 2002. At that time, NetEase plus code online games after the company’s performance was able to grow rapidly, but NetEase’s share price in the Nasdaq market in the United States hit a new low. At the time, NetEase’s chief financial officer Li Tingbin had said that NetEase’s daily trading volume on the NASDAQ market is only tens of thousands of shares, the depressed trading volume has been not conducive to the company’s development, the company is considering re-listing in Hong Kong GEM and other places, and said that in the future conditions allowed to consider listing on the mainland stock market. However, for a variety of reasons, the plan has not materialized.
The return of China’s shares has long been there, and earlier there have been a number of Chinese-owned enterprises to choose Hong Kong as a second listing location, or through a variety of ways to return to the A-share market.
Founded in 2000, SMIC went public in the United States and Hong Kong in 2004, but in May 2019 announced that it would delist Its American Depositary Receipts from the NYSE to the OTC market due to weak deals and high costs. Not long ago, SMIC (00981. HK) announced that it intends to issue no more than 1,686 million shares in The Company. SMIC also said in its announcement that the renminbi issue would give it access to China’s capital markets through equity financing and improve its capital structure while maintaining its international development strategy. It’s in the overall interest.
In addition, with the completion of the HKEx’s listing system for new economy companies last year, Alibaba, which lost its share of the market that year, again chose Hong Kong as its second listing site and successfully listed in November 2019. Alibaba raised HK$101.2 billion in Hong Kong, accounting for 32.4% of the total ipo market in Hong Kong that year, making it the third-largest IPO in HKEx’s history and the third listed company with different rights under the new listing system. For Alibaba, listing in Hong Kong would be closer to the Southeast Asian market and allow eastern investors to invest in trading. “One of the great benefits of Alibaba’s listing in Hong Kong is that it is closer to local and regional investors, enrich and expand its shareholder base, and that there is a time difference between Hong Kong and New York, where listings can meet the needs of investors to trade around the clock and further improve liquidity,” according to media analysis. “
Tiger Securities investment and research team analysis, the return of Chinese stocks to Hong Kong stocks or de-listing, with the United States supervision is not directly related, the company is an independent individual, excellent companies rarely from the regulatory worries, back to Hong Kong secondary listing is more important to disperse the risk of the secondary market, increase the impact in different markets, but also to bring new capital to the company’s development. “Companies have their own strategic considerations for choosing a place to go public, and they don’t follow it blindly or change at will. Tiger Securities investment and research team so.
Coin fund manager Deng Qi told Caijing New Media that in the case of international capital bullish on China, the listing of Chinese shares through Hong Kong stocks, on the one hand, can more easily access the favor of international capital, on the other hand, can also use Shenzhen-Hong Kong and Shanghai-Hong Kong pass, to give mainland investors the opportunity to invest in enterprises. Can be described as “one stone two birds.”
“The West doesn’t light up in the east”?
The return of China’s general stock is more than the enterprise’s consideration of its own development
One side is open, the other side is code-regulated. The listing site “the West is not bright or eastward”, more technology companies began to look to Hong Kong.
According to CICC’s “Six Questions on the Return of Chinese Stocks to Hong Kong Stocks”, a total of 234 Chinese shares listed in the United States, with a total market value of about $1.2 trillion (as of February 13, 2020). Most of them come from new economic sectors such as the Internet and technology (including fintech), consumers and pharmaceuticals, with a polarizing market capitalisation and liquidity distribution of more than 30 companies with an average daily turnover of more than $50 million. At the same time, CICC counts a total of 19 companies eligible for listing in Hong Kong, with a total market capitalisation of about $340 billion.
The other side, HKEx, issued a new listing rules in April 2018, and after the “new rules” came into effect, hkEx will allow three new types of companies to list: one, non-profitable bio-technology companies; And in the last fiscal year, the profit is not less than HK$1 billion;
When the new rules came into effect, the HKEx became an alternative to listing a number of new economic companies, making it the top spot for IPOs on the world’s major exchanges that year. According to statistics, in 2019, there were 183 new listed companies on the Hong Kong Stock Exchange, raising HK$312.741 billion, and up to 350 companies submitted applications for listing. Among them, Alibaba and Budweiser Asia Pacific are the world’s second and fourth largest IPO projects in 2019.
On 11 May, the Hang Seng Index issued a consultation summary, introducing a major reform to include the same shares of different companies and second listed companies to the Hang Seng Index and the Hang Seng China Enterprises Index. Since then, companies from the Mainland, Hong Kong, Macao and Taiwan and secondary listed companies in Hong Kong will be included in the stock selection category of the Hang Seng Index and the Hang Seng China Enterprises Index. Such companies have a 5 per cent cap on their share in the index. The move will attract more capital inflows and boost valuations for Hong Kong-share companies.
Yu believes that the choice of companies to go public in Hong Kong means more opportunities, and the company raises funds in foreign currencies, which can also meet the special allocation needs of enterprises.
On the other side of the U.S. stock market, in recent days, more signs of uncertainty have been released. On the one hand, luckin coffee fraud once again brought the crisis of trust in China’s stock market to a climax, on the other hand, the U.S. stock regulator also through a number of measures to increase the intensity of supervision.
On May 20, the U.S. Senate passed the Foreign Companies Accountability Act, which prohibits any foreign company from complying with PCAOB’s audit requirements for three consecutive years, and requires public companies to disclose whether they are owned or controlled by a foreign government. This could make it more difficult for Chinese companies to list in the U.S. and increase listing costs and audit risks for listed companies.
With uncertainty, multiple companies are starting to consider reflux. On May 21, Baidu founder Robin Li publicly told the media that he was discussing a second listing in Hong Kong and elsewhere. Ctrip, a U.S.-listed company, is also rumoured to be listed in Hong Kong.
The withdrawal of Chinese stocks is not necessarily a good thing for the U.S. stock market, Deng said, the withdrawal of good companies from the U.S., keen on these companies’ international capital will follow the transfer, for the U.S. stock market is a draw. On the contrary, if they withdraw from Hong Kong or a secondary listing in Hong Kong, Hong Kong will further strengthen Hong Kong’s position as an international financial market. At the same time, he said: “In the past, the general stock likes to list in the United States, but now it is not possible to take the medicine.” “
Tiger Securities investment and research team said that the company’s choice of listing location is their own strategic considerations, each market also has its own advantages and disadvantages. The Hong Kong market is no different from the mainland, trading is more convenient, star companies are prone to becoming scarce targets, generating premiums, the Hong Kong market has more mainland investors and a deeper understanding of local companies, while the Hong Kong market has less regulatory pressure to support the listing of “same-share rights” companies and the possibility of being included in the Hong Kong Stock Exchange or other indices. On the contrary, there are more institutional investors and more companies, and the regulation can filter out inferior enterprises under strict regulation, and listing in the United States can also enhance the international visibility of enterprises.
In addition to the alternative second listing site, many Chinese shares in a number of ways completely left the U.S. stock market. In April, Jumeiyou, officially delisted from the New York Stock Exchange, ending its nearly six-year U.S. stock listing. And five years ago, in the tide of china’s stock return, giant network, shanda games, Perfect World, Qihoo 360 and other companies listed in the United States have completed privatization and de-listing. Most of them are delisted because of the undervalued value, high cost of listing and maintenance, easy to short institutions, the company’s strategic adjustment and other reasons. With the return of most companies to the A-share market, valuations have improved and share prices have performed strongly.
In order to explore the domestic listing of red-chip companies, the domestic capital market is also trying to make changes. On March 8, Wang Jianjun, general manager of the Shenzhen Stock Exchange, who was first elected to the National People’s Congress, told the media at the two meetings that the Shenzhen Stock Exchange had basically completed the rules to meet the “unicorn” enterprises. On April 30, the CSRC announced the “Announcement on the Arrangements for the Listing of Innovative Pilot Red Chip Enterprises in China” and adjusted the market value requirements for overseas listed red-chip enterprises listed on the domestic stock market in order to help the overseas Chinese shares return to the A-share market in accordance with the requirements. The road back to A is widening, which also provides more options for China-general shares.