The latest: U.S.-listed online Q&A platform Zhihu Inc. (ZH.US; 2390.HK) on Thursday was placed on a growing list of Chinese companies that could be forcibly delisted for failing to comply with U.S. law, along with 16 other Chinese companies including U.S.- and Hong Kong-listed Li Auto Inc. (LI.US; 2015.HK). The U.S. Securities and Exchange Commission (SEC) took the action on the eve of the trading debut for a second listing of Zhihu shares in Hong Kong.
Looking up: Zhihu is making the second primary listing in Hong Kong alongside its current U.S. listing to protect its status as a publicly traded company. Such a listing will now become important insurance to allow the company’s shares to keep trading even if they are forcibly delisted from the U.S.
Take Note: The potential for a U.S. delisting, along with Zhihu’s money-losing status, led to a lukewarm response for Zhihu’s Hong Kong shares. Investors only subscribed for 2.603 million shares of the public portion of the offering, roughly equal to the number of shares being offered.
Digging Deeper: The Holding Foreign Companies Accountable Act (HFCAA), which the U.S. enacted in 2020 and amended last December, gives the SEC the power to suspend or even delist foreign companies that do not meet U.S. disclosure requirements. Most Chinese companies fail to comply because their auditors are banned by Chinese law from sharing their audit records with U.S. regulators. Since March, the SEC has placed a total of 40 Chinese stocks on its list of companies that fail to comply with the HFCAA’s requirements. It’s worth noting that these companies are apparently being added to the list in connection with their recent public filing of annual reports, as they are usually added to the list within a week or two of filing those reports with the SEC.
Market Reaction: Zhihu’s shares fell 27% in early trading on their Friday listing day, closing at HK$24.85 at the midday break, 22.5% lower than the IPO price of HK$32.06. Li Auto, which was also included on the SEC’s list, fell 2.7% to HK$91.35 at noon.
Translation by Jony Ho
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