Weibo Shares Fall as Twitter Equivalent Debuts in Hong Kong Market

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Short-messaging app Weibo ( (WB) and HK:9898) has joined the ranks of U.S.-listed Chinese tech companies opting to sell shares in Hong Kong with its Asian market debut here on Wednesday. It’s an escape hatch from a regulatory pressure squeeze on both sides of the Pacific.

Weibo, China’s equivalent of Twitter (TWTR) , saw its shares fall 7.25% on Wednesday to close at HK$253.20, down from the listing price of HK$272.80 per share.

Beijing-based Weibo sold 11 million Class A shares, half of them newly issued by Weibo itself and half converted by parent Sina Corp. from Class B shares. As of Weibo’s last annual report, Sina owns 44.7% of Weibo’s shares but controls 70.8% of its voting power due to the unequal voting power of A and B shares. Alibaba Group Holding ( (BABA) and HK:9988) owns 29.8% of Weibo but has 15.7% voting power after buying a big stake in 2013.

The Hong Kong share sale could well be a precursor to ditching Weibo’s New York listing. Sina itself delisted in March after two decades on Nasdaq, with investors getting an 18.1% premium on the company’s pre-deal share value, which had been languishing. Sina CEO Charles Chao orchestrated taking the company private in a deal valued at US$2.6 billion, which seriously undervalued its Weibo stake.

The New York-listed entity Weibo Corp. is a Cayman Islands company that owns 100% of Weibo Hong Kong, both of which are technically offshore companies outside mainland China. The Hong Kong company owns 100% of a mainland company, Weibo Internet Technology, which has a deal to get the business proceeds of another Chinese company, Beijing Weimeng Technology, and its subsidiary Beijing Weibo Interactive Internet Technology.

Phew. Quite a mess. Beijing Weimeng is a Variable Interest Entity, or VIE, a gray-area structure that has been tolerated by Chinese securities regulators. It allows overseas investors to invest into sectors such as Chinese tech that are off-limits to overseas owners.

It is not clear at all that Beijing will continue to tolerate such structures. The Chinese authorities have already brought in new rules effective at the end of November stating that any company with data on more than 1 million customers must pass a cybersecurity review before going public abroad.

On the other end, U.S. Congress passed the Holding Foreign Companies Accountable Act into law in December 2020. The new law insists that foreign companies must file accounts that can be vetted by the U.S. Securities and Exchange Commission’s accounting arm or be kicked off U.S. markets if they fail to do so for three years. Chinese regulators have not allowed accounting firms in China, even the local operations of the global Big Four, to share audits overseas for fear of leaking government-linked secrets.

As I explained last week, ride-hailing Chinese market leader Didi Global (DIDI) has decided to scrap its New York listing and attempt to list in Hong Kong instead. That’s after a disastrous fall in Didi shares, which are down 53.6% since listing after Chinese authorities barred it from signing new customers due to data-security concerns. It’s unclear what price U.S. shareholders will receive and/or if they will be offered Hong Kong stock.

The Hang Seng benchmark index ended flat with a 0.1% gain on Wednesday, an up day for the vast majority of Asian markets. The Topix in Tokyo rose 0.6% and CSI 300 index of the largest companies in mainland China jumped 1.5%. Hong Kong traders are antsy about looming defaults at the property developers China Evergrande Group (HK:3333 and EGRNY) and Kaisa Group (HK:1638).

Prominent tech stocks in Hong Kong also fared poorly, with Alibaba down 4.7%. Baidu ( (BIDU) and HK:9888), down 2.0%, and NetEase ( (NTES) and HK:9999), down 1.9%, were also among the losers and also recently listed in Hong Kong.

Weibo’s Hong Kong listing price is equivalent to US$35.01 per share for the American depositary shares based on a conversion rate of HK$7.795 per US$1. The Hong Kong dollar is pegged to the U.S. dollar to maintain currency stability but trades within a narrow band depending on liquidity and the actions of Hong Kong’s central bank, the Hong Kong Monetary Authority, which buys and sells both currencies to keep them in sync.

Weibo’s U.S. shares closed Tuesday at US$33.48, up 4.7% for the day. But that was a rebound from its fall surrounding the Dec. 2 pricing of the Hong Kong shares, which caused the U.S. price to descend from US$36.10 last Thursday to a low of US$31.28 on Friday. The pricing happened overnight U.S. time.

The shares are down 17.7% year to date. Weibo has been afflicted by the uncertainty surrounding Beijing’s crackdown on the tech sector, with a whole series of curbs and penalties and U.S. actions to pressure better disclosure on Wall Street.

These listings “back home” in Hong Kong bring the company closer to the mainland Chinese users of the app. But Hong Kong’s financial markets remain free and easy to enter for international investors, unlike the stock markets in Shanghai, Shenzhen and Beijing, where foreign access is heavily curtailed and the currency is not freely convertible.

Weibo’s underwriters have an overallotment available of 1.65 million shares, which they would need to exercise within 30 days of the Hong Kong offer closing, i.e. by Jan. 1.

The Hong Kong offering will generate HK$1.5 billion (US$192 million) for the company after fees. That’s half the total size of the offering, because Weibo will benefit only from the shares it is generating anew. Sina receives the proceeds of the shares it is selling.

Weibo says it will use the proceeds to expand its user base, increase user engagement and build out its “content ecosystem.” It will also invest in research and development and look for “strategic” acquisitions and alliances.

The big boys among the international investment banks operating in China won the business of the listing. The sponsors and book runners of the offering are Goldman Sachs (GS) , Credit Suisse (CS) , CLSA Capital Markets and CITIC Securities.

Weibo is heavily censored by the Chinese Communist Party. Searches for the Chinese tennis star Peng Shuai, who has accused a former Chinese vice premier of sexual assault, yielded nothing immediately after her Nov. 2 post on Weibo making those allegations. The Weibo post was up for around a half hour before being deleted.

Twitter is banned in China but widely used by Chinese officials abroad to promote the “China good news story.” Both Twitter and Facebook (FB) said last week that they had removed thousands of accounts churning out Chinese propaganda, often newly created accounts that share themes, content and even exact wording on posts. These were occasionally amplified by Chinese diplomats abroad.

The Swiss embassy in Beijing called attention to the issue when it highlighted comments purportedly made by a Swiss-based biologist with the decidedly un-Swiss name of “Wilson Edwards.” The comments indicated that Bern-born, Bern-based Edwards believed the U.S. government was meddling in World Health Organization efforts to uncover the origins of the coronavirus and that calls for closer investigation and lab audits “are largely politically motivated.”

The Swiss embassy said no such Swiss citizen exists and that it “must unfortunately inform the Chinese public that this news is false.” The photo of an academic building accompanying the Wilson Edwards profile on Facebook was a photo of the Radcliffe Camera library in Oxford, in England, not anywhere in Switzerland. The account was created the day of the post.

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