Chinese tech giant Alibaba is the latest company to run afoul of the US Securities and Exchange Commission, which has threatened delisting from US stock exchanges.
Alibaba’s addition to the SEC’s list of nearly 300 companies – mostly from China – means that US officials were unable to complete an audit of the company’s finances. The 2020 Holding Foreign Companies Accountable Act (HFCAA) gives the SEC the authority to delist companies if it is suspected that financial audits may not be accurate.
The news hit Alibaba stock hard on Friday, causing it to drop from $100.52 to $89.37 through the day. In a statement sent to the SEC on Monday, Alibaba said it would “strive to maintain its listing status,” and that it would continue to monitor market developments and comply with applicable laws and regulations.
Addition to the SEC’s HFCAA list doesn’t mean that Alibaba will immediately be removed from the New York Stock Exchange (NYSE). Instead, the notice marks the company’s first “non-inspection” year; Alibaba is only actually in danger of delisting if it hands in two more consecutive annual reports that run afoul of the HFCAA. The report that landed the company under scrutiny covered Alibaba’s fiscal year ending on March 31, 2022.
Companies on the provisional HFCAA list have 15 business days to dispute addition to the list. Along with Alibaba’s inclusion last week, pet company Boqii, Cheetah Mobile, ecommerce platform MOGU, manufacturing business Highway Holdings and logistics company Novagant Corp – all from China or Hong Kong – were added.
Alibaba also announced last week that it was planning to expand its presence on the Hong Kong Stock Exchange (HKEX), where it currently maintains a secondary listing (NYSE being its primary trading location). Once those plans are complete, Alibaba would have dual-primary listings on HKEX and NYSE.
The Alibaba shares currently available for purchase on the NYSE are what’s called “American Depositary Shares,” or ADSs, that are held by US financial institutions and act as an equity share of the company.
“ADSs listed in the United States and the shares listed in Hong Kong are fungible, and investors can continue to choose to hold their shares in the form of ADSs traded on the New York Stock Exchange or ordinary shares traded on the Hong Kong Stock Exchange,” Alibaba said. ®