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JD Highlights New Risks before Hong Kong Listing

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JD.com’s (NASDAQ:JD) Hong Kong listing is approaching quickly. Notably, the shares will likely start trading in Hong Kong on June 18.

JD has rallied ahead of the Hong Kong secondary listing. At about $59 per share, the stock has risen nearly 30% over the past month and about 70% YTD (year-to-date). JD is one of the best-performing Chinese technology stocks this year. Pinduoduo (NASDAQ:PDD) shares have risen more than 80% YTD, which puts it ahead of JD.

NetEase, a Chinese videogame company, shares have risen about 35% this year. Alibaba (NYSE:BABA) shares have risen about 4.0% for the year. However, Baidu (NASDAQ:BIDU) shares have fallen more than 8.0% for the year.

Alibaba and JD are China’s top e-commerce companies. The coronavirus outbreak boosted the companies’ sales. JD delivered a 20.7% YoY (year-over-year) jump in its revenue in the March quarter, which beat its 10% projection. The revenue amount of $20.6 billion beat the consensus estimate at $19.3 billion. Alibaba also reported a 22% YoY jump in its revenue in the March quarter.

JD’s Hong Kong listing brings new risks

JD’s Hong Kong listing will likely raise more than $4.0 billion. Last year, Alibaba’s Hong Kong listing raised $13 billion. NetEase is also listing its shares in Hong Kong. The transaction could generate over $3.1 billion.

JD’s plans to invest the financial windfall from the secondary listing in developing advanced supply chain technologies. Since the listing would shore up JD’s cash balance, it could enable the company to send more cash to shareholders. In March, JD boosted its stock repurchase program with an additional $2.0 billion. The company reported a $1.8 billion profit for fiscal 2019 and raised $1.0 billion through a bond sale.

Although JD’s Hong Kong listing promises plenty of gains, it also highlights several disturbing risks. For example, JD warned in a filing that its stock could be delisted from US exchanges. Last month, the Senate passed a bill that seeks to increase the oversight of Chinese companies whose stocks trade in the US. The legislation calls for the delisting of securities from US exchanges of Chinese companies that aren’t forthcoming about their government ties and accounting practices.

According to JD’s Hong Kong listing document, the company fears that legislation that limits its access to the US capital markets could weigh on its stock price.

Notably, the Senate passed the China oversight legislation amid rising US-China tensions following the COVID-19 outbreak. Chinese companies have been rethinking their US listing plans.

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