In the midst of increased scrutiny from domestic regulators, Chinese titan Alibaba Group Holding Ltd. has a new headache. The multinational powerhouse has been identified, among other Chinese companies, that could get the boot from US stock exchanges.
It was added to a growing list of Chinese companies by the US Securities and Exchange Commission, who acknowledged that their refusal to let American inspectors examine the financial audits of the companies could see them being removed from US stock exchanges.
The list includes over 270 Chinese companies that are currently listed in the New York Stock Exchange, and includes names such as Mogu Inc, Boqii Holding Limited, Cheetah Mobile Inc and Highway Holdings Limited. This development also comes months after shareholders in Chinese Uber counterpart Didi voted to delist the company from the New York Stock Exchange.
In other words, Alibaba is another step closer to being completely delisted from US exchanges if it fails to comply with US law. The law in question is the Holding Foreign Companies Accountable Act, which became effective from December 18, 2020, and required the SEC to identify publicly traded foreign companies on US exchanges that refused to let US officials inspect their financials.
Should they, for three consecutive years, stick to their stubborn stance of refusing financial audits by US officials, then the SEC will have the authority and power to kick the company from the stock exchanges (effectively delisting the companies).
For now, Alibaba has until August 19 to submit evidence to the contrary, that is, evidence that shows that it has no qualms to a financial audit by the US and that some audits have already taken place. Its shares plummeted by as much as 11% on Friday after the development was made public to trade at $89.37 at the closing bell.
This presents an interesting conundrum for China and Hong Kong, both of which have resisted US audit inspections for a long time, citing confidentiality and national security concerns. Should Alibaba be kicked off the US stock exchanges, it will be the largest Chinese company to get such a boot. Should all the 270+ companies be delisted, the fallout would be severe for Chinese companies and investors alike.