NIO does a loophole listing in Hong Kong

Business & Technology

One of China’s leading electric car companies is also pioneering a new financing hedge: a new type of listing that gives companies rapid access to capital in Hong Kong.

Image via NIO

Only 11 days after notifying the NYSE, Chinese electric vehicle manufacturer NIO is scheduled to start trading this Thursday in Hong Kong. NIO’s maneuver, a quick and painless process of double listing without issuing new shares, is a loophole dubbed “listing by introduction.”

  • This ploy is growing increasingly common for Chinese companies listed solely in the U.S. It provides firms with a safety net amid heightened regulatory scrutiny from Beijing.
  • Heightened tensions, arbitrary crackdowns, and legal investigations have all contributed to a growing disentanglement between the U.S. stock market and Chinese firms.
  • Didi, the Chinese Uber, abruptly delisted from the NYSE last December to comply with Beijing’s new data regime, among other reasons. In addition, Trump-era investment restrictions against “military-linked” tech firms led three major Chinese telecom giants — China Mobile, China Telecom, and China Unicom — to delist in May.

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The context: Listing by introduction requires no new market arrangements. Pre-existing shares of a company are moved from one stock market to the Hong Kong Exchange. Since no new shares or capital are issued, the process is much faster than the months-long process for ordinary IPOs.

  • Seventeen Chinese companies primarily based on the NYSE have secured a listing on the HKSE since late 2019. Meanwhile, an additional $42.2 billion has been raised in aggregate.
  • NIO has high expectations riding on its Hong Kong listing. A company spokesman stated Hong Kong will expose the company to a “wide range of private and institutional investors,” as well as “gain access to Hong Kong’s capital markets.”
  • NIO is also mulling over a third listing in Singapore.

Key question: NIO’s actions to hedge geopolitical risk are indicative of a wider trend among U.S.-listed Chinese companies. Stock market insurance from multiple exchange listings is perceived as an effective deterrent against increasingly unpredictable U.S.-China relations. Should investors consider these maneuvers an investment opportunity or a sign of troubled times?