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Business trends

Chinese tech giants gravitate toward mainland listings

New option for Alibaba and Tencent as they seek to raise billions for M&A

SHANGHAI -- Leading Chinese internet companies whose shares trade in markets such as New York and Hong Kong are showing a willingness to list in the mainland, seeking new fundraising avenues as the government works to lure investment capital home.

Listing on exchanges in Shanghai and Shenzhen would give the likes of search company Baidu, e-commerce leader Alibaba Group Holding and chat app operator Tencent Holdings a new option for funding acquisitions in the fiercely competitive Chinese market. Baidu, Alibaba and Tencent -- collectively referred to as BAT -- have all signaled an openness to the idea.

"One of the BATs probably will list in mainland China as early as this year," said an investment banker watching the prospects for a tech share offering.

Tencent will consider a mainland listing when and if the time is right, CEO Pony Ma said during a late-March earnings briefing in Hong Kong, where the WeChat operator is traded. Later that month, Baidu CEO Robin Li Yanhong described a mainland float as a "long-held dream" at the Chinese People's Political Consultative Conference, a state advisory body.

An Alibaba executive told Nikkei that the company has said it would consider listing in China if the conditions were right since just after its blockbuster 2014 initial public offering on the New York Stock Exchange.

In late March, China's government outlined a plan to let companies in high-tech fields like web services, artificial intelligence and biomedicine with market capitalizations over 200 billion yuan ($31.8 billion) trade on domestic exchanges while maintaining overseas listings. They would do so through so-called Chinese depositary receipts, financial instruments similar to American depositary receipts through which companies including Alibaba and Baidu trade in the U.S.

The BAT companies meet the requirements for such a listing, as do No. 2 e-commerce player and portal site operator NetEase, both of which trade alongside Baidu on Nasdaq.

"Alibaba would raise at least 10 billion yuan," said an executive at a major lender.

The Chinese government is also working to encourage mainland IPOs by "unicorns" -- unlisted companies valued at $1 billion or more -- such as Alibaba-backed financial services company Ant Financial, which runs the popular Alipay mobile payment platform, smartphone maker Xiaomi and ride-hailing app developer Didi Chuxing.

The prospect of this new fundraising avenue may already be spurring deals. This month, Alibaba bought all the shares it did not already own in food delivery service Tencent-backed online services company Meituan Dianping acquired bike-sharing provider Mobike, which already counted Tencent as an investor.

However, with Xi Jinping's government tightening its grip on the flow of information online -- just recently Beijing ordered downloads of several news apps to be cut off -- concerns have emerged over tech companies' ability to thrive if they returned to the mainland.

A major impetus for companies to list outside mainland China was the closed-off nature of the domestic market. China's stock exchanges, which opened in the early 1990s with the aim of helping state-owned companies raise capital, were unfriendly to private-sector names, in part because authorities picked which companies could list. And limits on investment from overseas made it hard to raise big sums.

"It is unfortunate that [China] could not capture the growth of internet companies" and other such players, said the chairman of the China Securities Regulatory Commission, Liu Shiyu.

One aim of coaxing major companies to list in the mainland appears to be preventing a repeat of the capital outflows China suffered in 2015 and 2016. As of the end of March, China's foreign exchange reserves had recovered to $3.14 trillion from below $3 trillion at the start of 2017. But capital continues to bleed out in hard-to-track ways, such as wealthy people investing in overseas real estate.

To attract investment, the government is embracing financial deregulation with greater enthusiasm. China will quadruple buying limits for the "stock connect" channels between the Hong Kong and mainland equity markets, Yi Gang, the newly appointed governor of the People's Bank of China, told the Boao Forum for Asia on Wednesday. Yi added that the country is working to establish a similar link with the London Stock Exchange by the end of this year.

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