Alibaba Group Holding has been placed on a growing list of Chinese companies which the US government is threatening to delist under a 2020 law, the Holding Foreign Companies Accountable Act (HFCAA) which requires foreign companies to file auditing papers with a US accounting oversight body. The decision comes just days after the company announced it intended to diversify its investor base by seeking a primary listing on Hong Kong’s bourse.
Under the law, companies can be delisted if they go three years without submitting their auditing papers. This means Alibaba now has three years to submit its paperwork.
Alibaba would be the biggest Chinese company to be delisted if it fails to comply with its legal requirements.
Alibaba’s depository shares fell 11% on the news Friday to close at US$89.37. Due to regulatory moves against it in both the US and China, as well as a weakening global macroeconomic environment, the company has lost about two thirds of its value since its heights in late 2020.
Three other Chinese internet companies, Mogu, Cheetah Mobile and Boqii Holding, were also added to the list by the SEC on Friday.
That brought the total to over 150 Chinese companies now set to be delisted, from e-commerce services providers JD.com and Pinduoduo, to video-sharing platform operator Bilibili and electric carmaker Nio. All were “deemed to be liable to HFCAA” as each one filed their annual reports.
Those more than 150 companies are out of a total of 261 Chinese companies listed on major US stock exchanges, with a total valuation of US$1.3 trillion.
Alibaba company chairman and chief executive Daniel Zhang Yong said in a statement last Tuesday that the company’s plan to upgrade its Hong Kong listing from a secondary listing to a primary listing would foster, “a wider and more diversified investor base to share in Alibaba’s growth and future, especially from China and other markets in Asia.” Observers also note it will considerably mitigate the risk of a US delisting by allowing the company to continue to be publicly traded.
SEC chair Gary Gensler has been somewhat unclear on just how stringent the auditing requirement is, saying of the possibility of the US striking deals with companies over how much data needed to be provided, “I just really don’t know right now. It’s going to be a choice made by the authorities there.”
Chinese regulators have been attempting to negotiate with their US counterparts to resolve the accounting issue. The China Securities Regulatory Commission has been offering to collaborate with the US accounting oversight board since 2019, hoping to reconcile local Chinese auditing rules with global bookkeeping standards.
Last November, the SEC determined that the Public Company Accounting Oversight Board, a non-profit entity which oversees accounting issues of public companies will be the entity that determines when a delisting process needs to occur.
For its part, Alibaba has announced that as of Tuesday, all of the lead executives of affiliate company the Ant Group have resigned from its partnership structure, as the financial affiliate waits for Beijing’s approval to turn the company into a financial holding group.