Alibaba added to SEC list of Chinese companies at risk of delisting
(Bloomberg) – Alibaba Group Holding Ltd. took a step closer to evicting American inspectors from US scholarships who cannot access financial audits.
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The U.S. Securities and Exchange Commission on Friday added the largest U.S.-listed Chinese company to a growing list of firms facing eviction due to Beijing’s refusal to allow U.S. officials to review the work of their listeners. The publication of the names of the companies, which was required by a law of 2020, launches a period of three years until a definitive delisting.
Alibaba extended its cuts after the SEC announcement, dropping as much as 10%.
Wall Street’s top watchdog is cracking down on New York-listed companies whose parent companies are based in China and Hong Kong.
Dozens of other countries allow US audit inspections, giving US officials the green light to interview local accountants and examine the documentation underlying their work. China and Hong Kong declined, citing privacy laws and national security concerns.
As time is running out, some Chinese firms, including Alibaba and Kingsoft Cloud Holdings Ltd., said this week they were seeking prime listings in Hong Kong, joining Bilibili Inc. and Zai Lab Ltd. who had taken the step earlier. The change could help companies attract more Chinese investors while providing a model for other U.S.-listed Chinese companies that face delisting if Washington and Beijing fail to settle disputes over audit.
A primary listing is a precursor to joining the so-called Stock Connect program, which allows millions of mainland investors to buy stocks directly in Hong Kong. This frees up a large new pool of capital that could become particularly crucial if China’s e-commerce leader is delisted.
The SEC’s addition of businesses from Alibaba to Pinduoduo Inc. to its list after the release of their 2021 annual financial statements has rattled global investors.
Beijing has discussed with US regulators the logistics of allowing on-site audit inspections of New York-listed Chinese companies, Bloomberg News reported in April, raising hopes of some sort of deal. But Securities and Exchange Commission Chairman Gary Gensler has repeatedly said it’s unclear whether U.S. and Chinese authorities will reach an agreement.
How the US is targeting Chinese companies to delist: QuickTake
Alibaba would be by far the biggest Chinese company to be kicked out of US stock exchanges if regulators fail to reach a pact. The company argued that since its IPO in New York in 2014, its accounts have been audited by globally recognized accounting firms and should meet regulatory standards.
Earlier this week, Gensler reiterated that Chinese and U.S. officials need to reach an agreement “very soon” for next steps to take place to avoid a halt to company trading on U.S. exchanges.
(Updates with share price in third paragraph.)
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