BEIJING — U.S.-listed Chinese electric car company Nio is set to offer its shares for trading in Hong Kong on March 10, the start-up announced Monday.
The move comes as regulatory risks grow in the U.S. and China for Chinese companies listed in New York, adding compliance challenges for businesses and investors.
However, unlike many U.S.-listed Chinese stock offerings in Hong Kong, Nio is not raising new funds or issuing new shares in this listing. Instead, the company is “listing by way of introduction,” which means a portion of existing shares will be available for trading in Hong Kong.
Nio plans to offer those shares for trading under the ticker “9866” starting next Thursday, according to a filing with the Hong Kong stock exchange.
The Chinese startup said it also applied for a “way of introduction” listing on the main board of the Singapore Stock Exchange. The electric vehicle company said it has no plans to make the Singapore and Hong Kong-listed shares exchangeable.
What are the regulatory risks?
Chinese companies are increasingly at risk of delisting from New York exchanges as Washington wants to reduce U.S. investors’ exposure to businesses that don’t comply with U.S. audit checks. Beijing has resisted allowing such foreign scrutiny of domestic businesses due to potential release of sensitive information.
In the last year, Beijing has also tightened its control of Chinese businesses’ ability to raise capital overseas with new and forthcoming rules ranging from data security to filing requirements. The new rules come in the wake of Chinese ride-hailing app Didi’s U.S. listing in late June, which drew Beijing’s scrutiny on data and national security.
One of the new rules from the increasingly powerful Cyberspace Administration of China — which took effect Feb. 15 — requires “network platform operators” with personal data on more than one million users to undergo a cybersecurity review.
It’s unclear to what extent the rules apply to secondary listings in Hong Kong.
Nio noted the new rule, among many others, in its filing with the Hong Kong exchange.
Based on legal advice from its advisor Han Kun Law Offices, Nio said the company was “of the view that the Cybersecurity Review Measures will not have a material adverse effect on our business, financial condition, operating results and prospects.”
As of Monday, “we have not been informed by any PRC governmental authority of any requirement to file for approval for this Listing,” the company said.
On data security, the electric car start-up said it has “qualified for Grade III of China’s Administrative Measures for the Graded Protection of Information Security.”
Grade three is “decently high standard” for most commercial sectors, said Ziyang Fan, head of digital trade at the World Economic Forum. He pointed out Beijing has specific regulations on auto driving data, that took effect Oct. 1.
Questions over the security of Nio’s autopilot data system stirred controversy in early August after a fatal crash.
China’s securities commission and cybersecurity regulator, the Singapore exchange, and Han Kun Law Offices did not immediately respond to CNBC’s requests for comment about Nio’s regulatory risks.
The Hong Kong exchange said it does not comment on individual companies or cases.
Listing “by introduction” is not a way to avoid cybersecurity scrutiny, but is a faster way for a company to get listed if it is not as focused on raising funds, said Bruce Pang, head of macro and strategy research at China Renaissance.
“Delisting risk is a real and emerging one. Every Chinese [American Depositary Receipt] should evaluate, hedge and manage it,” Pang said, referring to U.S.-listed shares of Chinese companies. ADRs are stocks of foreign companies trading on a U.S. exchange.
Didi said in early December it planned to delist from New York and pursue a Hong Kong listing, but did not specify a date.
Implications for other U.S.-listed Chinese companies
“We started down a path of converting our shares out of the U.S. ADRs into Hong Kong,” Brendan Ahern, U.S.-based chief investment officer of KraneShares, said in a phone interview in early February.
He expects the firm will accelerate the conversions this year as Chinese companies increasingly find it difficult to meet U.S. audit requirements, in addition to following Chinese law. “The path unfortunately seems pretty set,” Ahern said.
Last summer, Li Auto and Xpeng, two other U.S.-listed Chinese electric car companies, completed Hong Kong “dual primary listings.” That allows qualified mainland China investors to trade the shares through a program that connects the mainland and Hong Kong markets.
As of Friday’s close, Nio’s U.S.-listed shares had a market value of $33.31 billion. The stock has gained 234.5% from the September 2018 initial public offering price of $6.26 a share.
The stock plunged to a low of $1.19 in late 2019, before a state-led capital injection in early 2020 helped shares soar by more than 1,100% that year. But shares fell by 35% in 2021 and are down by more than 30% so far this year.