Electric vehicle manufacturer NIO successfully listed on the main board of the HKEX by way of introduction with shares beginning trading on March 10. This is the first time a Chinese company decided to return to home markets via a listing by way of introduction since the US-China trade tensions began.
NIO’s listing in Hong Kong follows two other Chinese EV manufacturers, Xpeng and Li Auto, which came back to the Hong Kong market through dual primary listings last year.
Simpson Thacher acted as Hong Kong and US counsel for joint sponsors Morgan Stanley, Credit Suisse and CICC, while Commerce & Finance Law Offices acted as PRC counsel for the sponsors.
NIO switched tactics in the process before deciding to list in Hong Kong by way of introduction, Bloomberg reported. The EV company originally applied for a share offering in Hong Kong in March last year, but was queried by HKEX about its structure, including a user trust, which delayed NIO’s plans.
However, tackling the problem also came with a price. According to the Hong Kong listing rules, companies listed by way of introduction are not allowed to issue new shares or raise funds within six months. Only existing shares are allowed for trading.
NIO previously explained that it decided “to provide corporate investors with an alternative transaction location, mitigate geopolitical risks, and expand the investor base … without diluting the interests of existing shareholders”.
Kong Xin, a Beijing-based partner at Commerce & Finance Law Offices who co-led the team on the deal, told China Business Law Journal that although listing by introduction may affect the liquidity of the company’s shares for six months, it was suitable for companies that had been listed in other regions with no financing demand in the short term, but which hoped to expand to HKEX as a future financing platform.
Kong explained that US-listed Chinese stocks have recently been affected by multiple exterior factors resulting in dramatic price fluctuations. “The valuation of Chinese stocks of the internet and other industries has been repeatedly challenged. Listing by way of introduction on the stock exchange will help in revaluating Chinese concept stocks rationally,” he said.
NIO mentioned on the listing documents that it had also applied for a secondary listing by way of introduction on the main board of the SGX-ST. Its application is currently under review.
NIO will not be the last homecoming listing by way of introduction. The heightened regulatory environment in both China and the US is seeing more US-listed Chinese companies looking for a way to return.
Way-of-introduction has become an alternative route for companies such as the ride-hailing platform Didi. After it was asked to delist in the US by Chinese regulators, it sought to list in Hong Kong by way of introduction. Another example is Tencent Music Entertainment, a subsidiary of tech giant Tencent, which announced at the end of March its secondary listing plan in Hong Kong by way of introduction.
With two capital markets involved in the Chinese stocks’ homecoming, two sets of regulations come into consideration. In view of NIO’s Hong Kong listing, Kong emphasised that “it is necessary to pay attention to the differences in regulatory strategies between US and Hong Kong capital markets. This is especially important for the companies, as they need to judge and weigh the different requirements of the two exchanges and the China Securities Regulatory Commission over the protection of minor shareholders, with the assistance from various professional institutions.”