Alibaba on Friday became the latest company to be added to the US Securities and Exchange Commission's list of Chinese companies that might be delisted.
Under the Holding Foreign Companies Accountable Act (HFCAA), companies will be delisted if their auditors fail to be inspected by Public Company Accounting Oversight Board (PCAOB), the US regulator, for three consecutive years.
In addition to accounting requirements, the act, signed under Trump administration, also requires companies to disclose whether a foreign government owns or controls them.
US regulators have been demanding complete access to audit working papers of New York-listed Chinese companies, but some have refused to do so, citing data security concerns.
The SEC has added more than 150 companies to its watchlist, including JD.com, Pinduoduo, Bilibili, NIO and more. If these firms failed to meet the audit requirements, they could be kicked off US exchanges as soon as 2024.
Over the past months, US and Chinese officials have been negotiating over the long-standing issue, but it seems like nothing has changed. Last week, Gary Gensler, chairman of the SEC, told press that he doubts that negotiators in Washington and Beijing will reach a deal granting US regulators access to audit papers of Chinese companies listed on American exchanges.
To reduce potential delisting risks and expand access to mainland Chinese investors, Alibaba said earlier this week that it was applying for a primary listing in Hong Kong. The listing is expected to be completed by the end of 2022, and Alibaba will become a dual-listed company on the New York Stock Exchange and the Hong Kong Stock Exchange. Alibaba's current listing in Hong Kong is a secondary one.
Alibaba's shares were down 11% at $89.37 at the closing bell, ending the month 21.4% lower.