The U.S. House of Representatives has passed the Holding Foreign Companies Accountable Act, which could lead to foreign companies getting delisted if they don’t comply with the new standards. Alibaba is the largest foreign company listed on U.S. stock markets. What would happen if Alibaba is delisted?
Alibaba holds the record of the largest IPO ever, listing on U.S. stock markets in 2014 and raising $25 billion. In November 2020, Alibaba-backed Ant Financial looked set to break Alibaba’s record with a dual listing in Shanghai and Hong Kong before its listing was put on hold by Chinese authorities. In 2019, Alibaba also listed in Hong Kong.
Will Alibaba be delisted?
The Holding Foreign Companies Accountable Act makes a provision to delist foreign companies under the following circumstances:
- They do not comply with U.S. Public Accounting Oversight Board audits for three years in a row.
- They are controlled or owned by foreign governments.
Ant Financial:— Samir Arora (@Iamsamirarora) November 3, 2020
IPO: US$ 35 billion
Subscriptions: US$ 3 trillion
Grey mkt trading yesterday at +50%
Today Ant Financial says all IPO application money will be refunded
No one knows anything about anything beyond a point.
Foreign companies would also be subject to independent audits, like their U.S.-based counterparts. The regulations aim to create parity between U.S. and foreign companies. They aim to avoid accounting scandals like Luckin Coffee's, which arose from an alleged lack of support from Chinese authorities to U.S. agencies.
However, there's also a political side to the bill, which has bipartisan support in Washington. The consensus is that the strategic threat arising from China must be addressed, but there's disagreement on how to go about it.
The bill would give some time to companies to comply with regulations. If Alibaba does not comply with the new requirements, it would face delisting. Although Alibaba is not owned by a foreign government, Alibaba co-founder Jack Ma is a member of the Chinese Communist Party.
Will I lose my money if Alibaba is delisted?
If the U.S. goes ahead with delisting Alibaba, expect a crash in its stock price. You would maintain the same number of shares, but they would then be traded on over-the-counter markets, which are less liquid.
What happens to shares when a company gets delisted?
Delisting can be voluntary or involuntary. Companies sometimes choose to delist their shares and go private, as Elon Musk famously tweeted about Tesla. In a voluntary delisting, companies typically pay a premium on their current stock price to buy back shares from investors.
In contrast, in an involuntary delisting, the company is forced to delist its shares by regulatory authorities. In such cases, investors maintain the same number of shares, but the shares are traded on over-the-counter markets instead of regular exchanges.