Despite an Audit Disagreement, China’s Alibaba is Attempting to Preserve Its New York Listing!

Alibaba Group Holding Ltd (9988.HK)said on Monday it would work to maintain its New York Stock Exchange listing alongside its Hong Kong listing after the Chinese e-commerce giant was placed on a delisting watchlist by U.S authorities.

Alibaba stock closed down almost 3.8 percent in a market that was almost flat (.HSI) in Hong Kong. This came after it fell by 11.1% in New York on Friday.

On Friday, the company joined more than 270 others on a list of Chinese companies that the U.S. Securities and Exchange Commission might take off the market if they don’t meet auditing requirements.

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The Holding Foreign Companies Accountable Act (HFCAA) is meant to settle a long-running dispute about how Chinese companies listed in the U.S. follow auditing rules.

Its goal is to get foreign companies off U.S. stock exchanges if they don’t meet American auditing standards for three years in a row.

Alibaba on Monday said being added to the list meant it was now considered to be in its first ‘non-inspection’ year.

China's Alibaba

“Alibaba will continue to monitor market developments, comply with applicable laws and regulations and strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange,” it said in a statement to the Hong Kong bourse.

U.S. regulators have been asking for full access to audit working papers of Chinese companies that are listed on the New York Stock Exchange but are kept in China.

Beijing doesn’t let people from other countries look at the working papers of local accounting firms.

According to U.S. rules, Chinese companies have until the beginning of 2024 to meet auditing requirements. However, Congress is considering bipartisan legislation that could move the deadline up to 2023.

China has said both sides are committed to reaching a deal to solve the audit dispute.

Alibaba said last week it planned to apply to convert its Hong Kong secondary listing to a dual primary listing which would make it easier for mainland Chinese investors to buy its shares.

With a dual listing, Alibaba could apply to join Stock Connect, a system that links the stock exchanges in Hong Kong and the mainland. Analysts thought that mainland investors could put $21 billion worth of money into Alibaba stock through Stock Connect.

Alibaba’s Hong Kong-listed shares have dropped by 49 percent since their secondary listing in November 2019. On Monday, they were worth HK$90.15, down from HK$176. In 2014, each of its shares was listed for sale in New York for $68. Today, each share is worth $89.37.

Both sets of listed shares are down nearly 25% so far this year as the company faces the threat of delisting, ongoing Chinese tech regulations, and the possibility that founder Jack Ma will give up control of the company’s affiliate Ant Group.

Analysts at Jefferies said that the drop in Alibaba’s share price was a “knee-jerk reaction” to the news of possible delisting. They also said that the Chinese American Depository Receipt delisting deadline of 2024 gives China enough time to fix its audit problems.

They wrote, “China is serious about wanting to work out the audit problems with the U.S., and talks will continue.”

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