What impact would JD.com’s Hong Kong IPO have on US share price?
Amid US delisting concerns, JD.com’s upcoming Hong Kong flotation gives the Chinese e-commerce firm a backup plan should US-China tensions escalate.
Chinese e-commerce company JD.com has priced its upcoming Hong Kong public offering on 18 June 2020 at a maximum rate of HK$236 (US$30.45) per share.
The company plans to issue a total of 133 million shares – 95% of shares are reserved for overseas investors, while 5% are for Hong Kong residents – in this secondary flotation, it said in a filing to the US Securities and Exchange Commission (SEC). This would raise roughly HK$31.4 billion (US$4.05 billion).
If the underwriters of the deal – which include UBS, Bank of America and more than ten other investment banks – choose to exercise an over-allotment option in the event of oversubscription, this would bring the total amount of shares sold to as high as US$4.3 billion.
The planned share sale price represents a 48.6% discount from JD.com’s most recent American depository shares closing price of US$59.29 as of Monday 08 June 2020, based on IG trading data.
The company said it plans to pump the raised capital into improving supply chain technology and operating efficiency.
IG is a world-leading online trading and investments provider for thousands of financial markets. With CFDs, you can buy long or sell short on JD.com, Alibaba, Tencent and other Chinese tech stocks depending on whether you think prices will rise or fall. Start today by opening an IG account.
Connection between Hong Kong listing and existing ADS shares
JD.com’s launch on the Hong Kong bourse comes in the midst of growing tensions between the US and China, a development that many fear could lead to the delisting of Chinese companies across US stock exchanges.
Last month, the Nasdaq issued a delisting notice to Chinese coffee house chain Luckin Coffee after the company admitted to fabricating aggregate sales figures amounting to some 2.2 Chinese billion yuan.
Following that, the US Senate recently unanimously passed a bill that requires Chinese companies listed on American stock exchanges to submit audits for inspection by the Public Company Accounting Oversight Board. Failure to do so will result in ‘deceitful Chinese companies' being 'kicked off US exchanges’, co-sponsors of the bill were quoted as saying by CNN.
JD.com in its SEC filing, also cited such regulatory concerns, stating: ‘Enactment of any of such legislations or other efforts to increase US regulatory access to audit information could cause investor uncertainty for affected issuers, including us, the market price of our (US shares) could be adversely affected, and we could be delisted if we are unable’ to meet requirements in time.
Chinese gaming company NetEase, which announced a secondary Hong Kong listing at the same time as JD.com, also expressed similar sentiments in its SEC prospectus.
Gain access to JD.com, NetEase and thousands of shares via IG's world-leading trading and investments platform. With CFDs, you can buy long or sell short on Chinese tech stocks depending on whether you think prices will go. Start today by opening a live or demo IG account.
Implications on JD.com’s US share price
For now, it appears that the Hong Kong listing is helping to boost the e-commerce giant’s US share prices.
On Monday 08 June, the company’s ADS opened 3% higher, as the Hong Kong share sale made weekend headlines.
On a forward-looking basis, IG Asia analyst Pan Jingyi says an uptrend remains in place for the JD.com stock, with prices having adopted a steeper rally trajectory through May 2020 and into June.
‘Prices had clearly broken past the resistance at US$55.90 levels that had previously stalled gains, and is eyeing a break of the US$60 handle at present. Although prices are again showing signs of being overbought on the relative strength index (RSI) indicator, the upward momentum remains intact,’ Pan posits.
However, she further notes that declining trade volume at the start of June suggests that prices may consolidate in the immediate short term before continuing in the uptrend again, ‘though any news trigger here could just be factors propelling a challenge of the US$60 handle’.
Read more: Why did JD.com’s share price soar to a 2.5-year high despite lower earnings?
How to trade Chinese tech stocks with IG
Are you bullish or bearish on JD.com, NetEase and other Chinese tech stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs in a few easy steps:
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get commission from just 0.08% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets
- Forex
- Shares
- Indices
