Lyra Martin Tech 08.01.2022 05:Aug AM EDT

Alibaba Group Holding May be Delisted from US Stock Markets — Here's Why

Alibaba was put on the SEC's watch list of Chinese companies that could be delisted in the US under the Holding Foreign Companies Accountable Act of 2020 (HFCAA).

Alibaba is Facing Delisting Threats in the US Stock Market

Alibaba Group Holding has been added to a growing list of Chinese companies that could be delisted from US stock exchanges after it declared plans to seek the primary listing on Hong Kong's market to expand its investor base.

Alibaba, the South China Morning Post owner, was placed on the Securities and Exchange Commission (SEC)'s watch list of Chinese firms that may be delisted under the Holding Foreign Companies Accountable Act in 2020 (HFCAA).

According to that rule, international corporations who don't turn in their audit documents to a US accounting monitoring group for three years in a row risk being delisted. The three-year countdown has therefore begun for Alibaba to meet the criterion.

If Alibaba does not comply with that legal requirement, it may become the most prominent Chinese company delisted in the US. The Hangzhou-based business did not immediately answer an inquiry for comment on Saturday.

American depositary shares of Alibaba fell 11% on Friday to settle at US$89.37 due to the SEC's action. Since its high in late 2020, the company's value has decreased by about two-thirds due to regulatory challenges in China and the US and a deteriorating global macroeconomic situation.

More than 150 Chinese businesses are on the SEC's preliminary delisting list, including e-commerce firms JD.com and Pinduoduo, video-sharing platform Bilibili, and electric automobile Nio. After filing annual reports, they were assigned to the SEC's watch list of "HFCAA-liable" corporations. Alibaba, on the other hand, filed on Tuesday.

According to a study by the US-China Economic and Security Review Commission, 261 Chinese businesses were listed on major US stock markets by the end of March.

Share Price of Alibaba Group Holding Ltd. Dropped for the Third Straight Day

The price of Alibaba Group Holding Ltd. dropped for the third day in a row as investors evaluated the effects of Jack Ma allegedly giving up control of his fintech company and as concerns about its profitability persisted.

On Friday (July 29), shares dropped 6.1% at the closing in Hong Kong, ranking among the Hang Seng Tech Index's largest losers. The IT giant is anticipated to release its first-ever quarterly sales growth report that is negative next week.

As traders discussed the ramifications of a story that Ma would relinquish control of Ant Group Co., which Alibaba controls to a third, the selloff persisted. While the decision may help both companies overcome certain legal obstacles, a change in management might put off Ant's initial public offering.

Kenny Wen, head of the investment strategy at KGI Asia in Hong Kong, worries that Jack Ma's pick may delay Ant's IPO. A-share companies may have trouble receiving approval if their ownership changes within three years.

Additionally, Ele.me, which Alibaba owns, and other online food delivery services were warned about a pricing war by the market regulator of Hangzhou city, according to Wen of KGI Asia

Alibaba is now 11% lower than it was on Tuesday (July 26), when confidence over mainland capital inflow was boosted by its proposal to change its Hong Kong listing to primary.

To trade below its 50-day moving average, the Hang Seng Tech Index fell 4.9 percent. JD Health International Inc. and Kuaishou Technology were two further notable decliners.