Chinese companies continue listing on NYSE-listed is a homecoming trend. Zhihu is the latest to participate in the waiting list. Unfortunately, Hong Kong’s dual-class share rules have created many challenges in the transaction. Zhihu, the shareholders of a Chinese question and answer website, plans to raise HK$834m. The plan is from a Hong Kong dual primary listing after the secondary ordinary shares of 26m.
Actually, instead of a secondary listing, Zhihu choses dual primary listing in Hong Kong. The secondary listing requires a good track record of at least two financial years of regulatory compliance on qualifying exchanges. The company raised a share from $9.50m last year to a $523m share in the NYSE IPO.
Zhihu is a company with a weighted voting rights scheme. It means the company must meet a particular requirement of market capitalization in Hong Kong. Meanwhile, local listing rules require companies with a WVR structure to gain a market cap. The market cap would be at least HK$40bn during listing. Then, a market cap of at least Hk$10bn and revenue for at least HK$1bn. It for the latest audited financial year.
The major problem does not lie in whether ornot market cap requirements are not too rigid when the market is good. But it is more likely, it is risky to be delisted by the U.S. regulators over auditing issues. It is due to the crackdown of Chinese regulators hammering U.S. listed Chinese shares. So, they struggle a lot to meet the requirements.
Therefore, in order for the U.S.-listed smaller companies to return in Hong Kong, they must have passed pricing recovery first, said ECM banker. Zhihu on this occasion does not meet the threshold enough. Especially, when the company’s NYSE shares fell as much as 78% in the past six months.
