Alibaba shares fell after the Securities and Exchange Commission announced on Friday that it had added Alibaba to a watchlist of Chinese firms whose stock may be kicked off Wall Street if US auditors cannot inspect their financial statements. On Monday, Alibaba’s US-listed shares plunged 11%, but later recovered some of those losses.
Concern about Alibaba has been brewing for years. In late 2020, the company was swept up in a Chinese government crackdown on the country’s booming technology sector. Alibaba’s stock price has fallen nearly 70%, from its all-time high, and revenue growth has slowed for many tech companies as well as local Chinese firms. The crackdown and economic slowdown have wiped out billions of dollars from their market cap.
The Securities and Exchange Commission can order companies to submit to inspections of their financial audits if they fail to do so for three years in a row. China has long refused such requests from the United States, and it requires companies that are traded overseas to hold their audit papers in mainland China, where they cannot be examined by foreign agencies. The SEC has added more than 150 companies to its watch list, including Alibaba (BABA), Didi , JD.com (JD), Baidu (BIDU), and Yum China Holdings (YUMC). On Monday, Alibaba said it would monitor market developments and “strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”
Last week, Alibaba announced that it would seek a primary listing on the Hong Kong stock exchange, a move seen by many analysts as preparing for a potential loss of direct access to US capital market. Currently, Alibaba has a secondary listing on the Hong Kong stock exchange. “A primary listing status in Hong Kong gives Chinese ADRs (American Depository Shares) an optionality to diversify their listing risk and retain access to the public equity market” if they are forced to leave the United States, said Goldman Sachs analysts in a report last week.
