What impact would JD.com’s Hong Kong IPO have on US share price?
Amid US delisting concerns, JD.com’s upcoming Hong Kong flotation gives the Chinese e-commerce firm a backup plan should US-China tensions escalate.
Chinese e-commerce company JD.com has priced its upcoming Hong Kong public offering on 18 June 2020 at a maximum rate of HK$236 (US$30.45) per share.
The company plans to issue a total of 133 million shares – 95% of shares are reserved for overseas investors, while 5% are for Hong Kong residents – in this secondary flotation, it said in a filing to the US Securities and Exchange Commission (SEC). This would raise roughly HK$31.4 billion (US$4.05 billion).
If the underwriters of the deal – which include UBS, Bank of America and more than ten other investment banks – choose to exercise an over-allotment option in the event of oversubscription, this would bring the total amount of shares sold to as high as US$4.3 billion.
The planned share sale price represents a 48.6% discount from JD.com’s most recent American depository shares closing price of US$59.29 as of Monday 08 June 2020, based on IG trading data.
The company said it plans to pump the raised capital into improving supply chain technology and operating efficiency.
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Connection between Hong Kong listing and existing ADS shares
JD.com’s launch on the Hong Kong bourse comes in the midst of growing tensions between the US and China, a development that many fear could lead to the delisting of Chinese companies across US stock exchanges.
Last month, the Nasdaq issued a delisting notice to Chinese coffee house chain Luckin Coffee after the company admitted to fabricating aggregate sales figures amounting to some 2.2 Chinese billion yuan.
Following that, the US Senate recently unanimously passed a bill that requires Chinese companies listed on American stock exchanges to submit audits for inspection by the Public Company Accounting Oversight Board. Failure to do so will result in ‘deceitful Chinese companies' being 'kicked off US exchanges’, co-sponsors of the bill were quoted as saying by CNN.
JD.com in its SEC filing, also cited such regulatory concerns, stating: ‘Enactment of any of such legislations or other efforts to increase US regulatory access to audit information could cause investor uncertainty for affected issuers, including us, the market price of our (US shares) could be adversely affected, and we could be delisted if we are unable’ to meet requirements in time.
Chinese gaming company NetEase, which announced a secondary Hong Kong listing at the same time as JD.com, also expressed similar sentiments in its SEC prospectus.
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Implications on JD.com’s US share price
For now, it appears that the Hong Kong listing is helping to boost the e-commerce giant’s US share prices.
On Monday 08 June, the company’s ADS opened 3% higher, as the Hong Kong share sale made weekend headlines.
On a forward-looking basis, IG Asia analyst Pan Jingyi says an uptrend remains in place for the JD.com stock, with prices having adopted a steeper rally trajectory through May 2020 and into June.
‘Prices had clearly broken past the resistance at US$55.90 levels that had previously stalled gains, and is eyeing a break of the US$60 handle at present. Although prices are again showing signs of being overbought on the relative strength index (RSI) indicator, the upward momentum remains intact,’ Pan posits.
However, she further notes that declining trade volume at the start of June suggests that prices may consolidate in the immediate short term before continuing in the uptrend again, ‘though any news trigger here could just be factors propelling a challenge of the US$60 handle’.
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