Last week, the SEC dropped the final “regulatory shoe” by specifying the rules and procedures that will implement the accounting compliance requirements outlined in the Holding Foreign Companies Accountable Act (HFCAA) on foreign companies listed on US stock exchanges. Right on cue, every Chinese company currently listed in the US promptly plummeted on the news. Invesco’s Golden Dragon China ETF, which tracks the NASDAQ’s Golden Dragon China Index, dropped close to 10% last Friday.
The designation that the SEC will use on companies to be scrutinized is called “Commission-Identified Issuers” (aka Santa’s “naughty list”). To be clear, these auditing standards have been around since the Sarbanes-Oxley Act of 2002. They are just poorly enforced by the Public Company Accounting Oversight Board (PCAOB) when it comes to Chinese companies, likely because helping these companies IPO in the US has been so profitable for Wall Street.
In the coming weeks and months, we will find out which company will end up on the “naughty list” on this SEC webpage. In the meantime, I see three paths that these US-listed Chinese companies will take: secondary to primary, dual-primary listing, and total exit.
Path 1: HKEX Secondary to Primary (Alibaba)
Ever since the HFCAA started gaining momentum in the US Congress two years ago, Chinese tech companies have been looking for a Plan B. Alibaba led the way by doing a secondary listing on the Hong Kong Stock Exchange (HKEX) in November 2019. Many other tech companies -- Netease, Baidu, BiliBili, etc. -- followed suit.
There are a few aspects of the HKEX secondary listing option (aka Path 1) that makes it a natural offramp from the US, especially for large Chinese tech companies.
First, this option is only available to companies who’ve already listed for more than two years on the NYSE, NASDAQ, or the premium listing on the London Stock Exchange, which by proxy shows these companies have met a high standard of compliance and disclosure. Thus, the required paperwork to execute a secondary listing on HKEX is much less than a primary listing (aka Path 2, see below). The timeline is also shorter -- approximately 90 days for a secondary listing versus 180-200 days on average for a primary listing. Alibaba, Netease, and Baidu obviously qualify, given their size and age. BiliBili, a relatively newcomer, filed for HKEX secondary listing as soon as it qualified -- its NASDAQ debut was March 2018 and its HKEX secondary started trading in March 2021.
Second, the HKEX changed its rules in April 2018 to allow a dual-class share structure, which is common among tech companies. It was one of the main reasons why Alibaba decided not to go public in Hong Kong back in 2014. Companies who have this structure, called weighted voting rights (WVR) in HKEX parlance, also have to meet a certain revenue threshold. Given this “new and improved” HKEX, tech companies like Alibaba no longer have to compromise on its corporate structure.
Third, and perhaps least well-known, if the trading volume of a company via its HKEX secondary listing exceeds 55% of its global volume, Hong Kong automatically becomes the company’s primary regulator, not Uncle Sam’s SEC. Thus, for example, if the SEC puts Alibaba on the “naughty list” as a Commission-Identified Issuer, and Alibaba decides to either not comply or fail to meet the PCAOB’s standards, its trading volume in the US would fall sharply while its Hong Kong volume would grow. By then, it’s just a matter of time when the 55% threshold is reached in Hong Kong, and Alibaba naturally leaves the SEC’s jurisdiction with Hong Kong’s Securities and Futures Commission (SFC) becoming its primary regulator.
This Path 1 -- HKEX Secondary to Primary -- is not available to every company. For the ones who do qualify, it’s the cheapest and quickest way to build a Plan B from the US.
Path 2: Dual-Primary Listing (XPeng)
For companies who cannot, or don’t want to, pursue Path 1, another path forward is a dual-primary listing on both an American exchange and the HKEX. XPeng, a leading Chinese electric vehicle (EV) maker, paved this path in July by IPOing on the HKEX less than one year after its IPO on the NYSE. Li Auto, an XPeng competitor, followed suit in August. NIO, another Chinese EV maker, also attempted to follow but its Hong Kong listing is delayed until 2022.
There are some advantages to pursuing a HKEX primary listing, the most important of which is access to Mainland Chinese investors via the stock connect that links Hong Kong to investors trading in Shanghai and Shenzhen.
There are some drawbacks as well. First, the company can’t piggyback off of the work already done for its US public listing in its HKEX primary listing application. Hong Kong’s SFC is a compliance-oriented regulatory regime, which is quite different from the SEC’s disclosure-oriented regime. Second, the timeline is also longer, as I noted above. Third, the ongoing filing, auditing, and compliance cost to make two primary regulators happy is no chump change.
However, for Chinese tech companies who want to maintain exposure to the US public capital market and don’t qualify for HKEX secondary listing, Path 2 -- a dual-primary listing -- may be their only option. Luckily, XPeng has built some prior art for others to copy. And for certain types of tech products that need a growth story beyond China, EVs being a good example, keeping a US listing and complying with the SEC is still worth the trouble.
Path 3: Total Exit (Didi)
Path 1 and 2 are both hedges against a forced delisting. I believe companies who’ve chosen these two paths still intend to work with the SEC to comply and hopefully stay listed in the US. Path 3 is a total exit, which is appealing for companies that have no business prospects or ambition in the US anyways, and dealing with the SEC is a waste of time.
Didi is one good example and has already begun the process to delist. While Didi has some international ambition in Latin America, as I’ve documented during my travels there, it has no prospect in the US. I can see companies like Pinduoduo, Beke, TAL Education, and Lufax doing the same. Leaving the US will likely be followed by a primary listing on the HKEX. However, compliance does not necessarily get easier for these companies with a Hong Kong listing. Didi chose to IPO on the NYSE and went against Chinese regulators’ wishes partly because it would have to do a lot more work to change its business structure and model to meet HKEX’s requirements. Ironically, with the HFCAA and the SEC’s new rules, Didi can no longer escape Hong Kong.
As the SEC works through its process, there will be plenty of Chinese companies on the “naughty list” and many of them will simply choose Path 3, leaving the US once and for all. What may be more interesting to speculate on is which company will pass the SEC’s compliance gauntlet and end up on the “nice list”! Out of the more than 200 US-listed Chinese companies, there ought to be at least a few companies who do follow solid accounting practices and are not owned by the Party or anyone the US government deems questionable characters. These companies would be the true unicorns!
Regardless of which company ends on which list, the “great delisting” will keep plenty of accountants, lawyers, and of course bankers busy and gainfully employed.
让 "大退市" 开始吧
上周，美国证券交易委员会（SEC）最后的一只 "监管鞋" 落地了，明确了在美国上市的外国公司履行《外国公司责任法》（HFCAA）中规定的会计合规要求的规则和程序。随即，所有目前在美国上市的中国公司因此消息立即暴跌。追踪纳斯达克的金龙中国指数的Invesco的金龙中国ETF，上周五下跌接近10%。
SEC命名要被审查的公司的专用词是“Commission-Identified Issuers”，也可以理解为是圣诞老人的 "淘气名单"（naughty list）。说白了，这些审计标准自2002年的萨班斯 · 奥克斯利法案以来就一直存在。只是当涉及到中国公司时，上市公司会计监督委员会（Public Company Accounting Oversight Board，PCAOB）执行不力，很可能是因为帮助中国公司赴美上市对华尔街来说太赚了。
在未来几周和几个月内，这个 "淘气名单" 会逐渐在SEC网页上公布。同时，我认为这些在美国上市的中国公司将采取三种途径：二级转一级，双一级上市，或完全退出。
途径1：港交所二级转一级（阿里巴巴）
自从两年前HFCAA开始在美国国会受到重视以后，中国科技公司一直在寻找Plan B。阿里率先于2019年11月在港交所进行二级上市。许多其他科技公司 —— 网易、百度、B站等 —— 也纷纷效仿。
港交所二次上市（即途径1）有几个方面使其成为退出美国的一条自然途径，特别是对科技巨头们而言。
首先，此选择只适用于已经在纽约证券交易所、纳斯达克或伦敦证券交易所高级上市超过两年的公司，以证明这些公司在合规和公布信息方面符合了较高的监管标准。因此，在港交所进行二级上市所需的文件比一级上市（即途径2，见下文）要少得多。需要花的时间也更短 —— 二级上市大约90天，而一级上市平均需要180-200天。鉴于阿里、网易和百度的规模和年龄，它们显然是符合条件的。BiliBili作为一个相对较年轻的公司，一符合条件就申请了在港交所二级上市。它是2018年3月在纳斯达克上市的，而在2021年3月就开始在港交所进行二级交易了。
其次，港交所在2018年4月改变了规则，允许双类股权结构。这种股权结构在科技公司中很常见，这也是为什么阿里早在2014年决定不在香港上市的主要原因之一，当时港交所还不允许这种结构。想保持这种结构的公司（用港交所的说法叫加权投票权，weighted voting rights，WVR），还必须达到一定的收入门槛。鉴于这个 "新改进的" 港交所，像阿里这样的科技公司不再需要在其公司股权结构上做出妥协了。
第三，也许是最不为人知的，如果一家公司通过港交所二级市场的交易量超过其全球交易量的55%，香港自动成为该公司的主要监管领域，也就不是山姆大叔的SEC了。因此，举例来说，如果SEC将阿里列入 "淘气名单"，而阿里决定不遵守或不符合PCAOB的标准，其在美国的交易量将急剧下降，而其在香港的交易量将增长。届时，在香港达到55%的门槛只是时间问题，到时候阿里自然会脱离美国SEC的管辖，香港证券及期货事务监察委员会将成为其主要监管机构。
这个途径1 —— 港交所二级转一级 —— 并不是每家公司都可以使用的。对于那些符合条件的公司来说，这是退市美国Plan B里最便宜、最快捷的方式。
途径2：双一级上市（小鹏）
对于那些不能或不想走“途径1”的公司来说，另一条路就是在美国和香港都做一级上市。今年7月，小鹏就选择了这条路，在纽约证券交易所上市不到一年后就在港交所一级上市。竞争对手理想汽车在8月也跟随其后做了同样的选择。另一家电车制造商，蔚来，也试图跟进，但其在香港的上市时间被推迟到2022年。
追求港交所一级上市有某些优势，其中最重要的是通过交易所连接，可以从香港接触到在上海和深圳炒股的大陆投资群。
同时也有一些缺点。首先，公司在申请港交所一级上市时，不能重用其在美国上市时的准备材料和文件。香港的证监会是一个以合规为导向的监管制度，这与美国SEC以披露为导向的制度有很大的不同。第二，正如我在上面指出的，需要花的时间也更长。第三，长期满足两个监管机构的需求而需要做的申报、审计和合规成本不是小数目。
然而，对于那些希望保持在美国上市，但又不符合港交所二级上市条件的中国公司来说，途径2 —— 双一级上市 —— 可能是它们唯一的选择。幸亏小鹏已经把这条路走通了，供其他公司复制。对于某些科技产品来说，海外市场的增长故事是必须的，电动车就是一个很好的例子。同时，企图保持在美国上市并遵守SEC的规定还是值得做的。
途径3：完全退出（滴滴）
途径1和2都是针对被强制退市的可能性的Plan B。我相信选择这两条路的公司仍然打算与SEC合作，尽力合规，希望保持在美国上市。途径3则是完全退出，这对那些在美国没有任何商业前景、业务或野心的公司来说最有吸引力，因为与SEC周旋就是浪费时间。
滴滴就是一个很好的例子，它也已经公布开始退市的计划了。虽然滴滴在拉美有扩张的野心，正如我在那里旅行时记录的那样，它在美国没有前景。我可以想象像拼多多、贝壳、好未来和陆金所这种公司都会选择完全退市。离开美国后，紧跟的就应该是在港交所一级上市。然而，在香港上市需要做的合规工作并不一定更容易。滴滴当初选择在纽交所上市，激怒了中国监管机构的意愿，部分原因就是它想避免为了满足港交所的要求，而必须做的公司改变。有点讽刺的是，随着HFCAA和SEC的新规则出台，滴滴再也无法逃避香港了。
随着SEC开始执行它的流程，将有许多中国公司被列入 "淘气名单"，其中许多公司将直接选择“途径3”，一劳永逸地离开美国。猜起来更有意思的是，哪家公司会通过SEC的合规审查并最终被列入到 "乖孩子名单"！在大约200多家已在美国上市的中国公司中，应该至少有几家公司确实遵循了扎实可靠的会计流程，并且不被党或美国政府认为有问题的人所控制。这种公司才是真正的独角兽!
无论哪家公司最终被列入哪个名单，"大退市" 将让大量的会计师、律师、当然还有银行家，继续忙碌，继续赚大钱。
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