Shares of Alibaba (NYSE: BABA) are down almost 8% since Thursday after the U.S. regulators added shares high-risk watchlist.
Why is Alibaba Stock Down?
The e-commerce giant’s stock plunged over 10% Friday after the Securities and Exchange Commission (SEC) placed BABA on the watchlist. This marks the latest in a series of challenges Alibaba faced over recent years since the Chinese government started a tough crackdown on local internet companies.
The government’s crackdown and a difficult macroeconomic environment have led to a significant growth slowdown for many Chinese companies, eradicating billions of dollars from their market capitalizations.
Now, Alibaba faces an increased risk of being delisted from the U.S. stock market if the company fails to provide the necessary audit information. More specifically, the SEC can delist foreign companies that are listed in the U.S. if they do not allow regulators to review their financial statements within three years.
China has been refusing to provide this information, citing national security risks. For this reason, China orders local companies that are listed overseas to keep their audit papers in mainland China.
In addition to Alibaba, the SEC has added over 150 companies to its watchlist, including several other Chinese tech giants such as Didi, JD.Com, Baidu, Yum, and more.
In response to the SEC’s move, Alibaba said it would keep an eye on market developments and try to “maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”
Alibaba, which currently has a secondary listing on the Hong Kong stock exchange, said last week it plans to seek a primary listing there, a move that could result in a loss of the company’s direct access to the U.S. market.
Jack Ma Giving Up Control Over Ant
Last month, Alibaba co-founder Jack Ma said he would give up control of Ant Group, a fintech affiliate of Alibaba. If his plan goes through, the move would mark a significant development in Ant’s restructuring since the Chinese government halted its $35 billion initial public offering (IPO) in 2020.
The IPO, which was supposed to be the largest public listing in the world, was terminated by Chinese authorities which then forced Ant to go through a “rectification” process that would make the company at the mercy of the same financial regulations that apply to traditional banks.
Earlier this year, Bloomberg reported that Chinese watchdogs are considering reviving Ant’s IPO as they eased their crackdown measures amid a significant economic slowdown. However, Ant denied those claims, saying it does not intend to launch another IPO and that it was “focused on steadily moving forward with our rectification work.”
China-based companies are not able to list their shares domestically if they have seen significant major shareholder changes in the past two to three years.
Jack Ma, who co-founded Alibaba in 1999, stepped down as the company’s CEO in 2013 and retired as executive chairman in 2019. As of 2020, the billionaire owned less than 5% of Alibaba, however, he remained the largest shareholder of Ant Group. According to Ant’s IPO prospectus in 2020, Ma controlled 50.52% of the fintech company through an entity he controlled.
Ant Group notified Chinese regulators that Ma intends to give up control of the company, which is now making preparations to turn into a financial holding company, according to the Wall Street Journal. While regulators did not order this move, they have “given their blessing” and WSJ reports that Ma could transfer his shares to some other Ant’s executives.
Alibaba stock price is down in recent days after the U.S. SEC added shares to its watchlist, signaling its intention to delist them from the NYSE in coming years. Shares of Alibaba are down almost 70% from their all-time high.