High volume of ADR-related questions suggests a major information mismatch. We answer further questions, including dual-listing qualification, Southbound eligibility, US ownership of ADRs, and last but not least, how real the ADR delisting risk is and whether we should worry about it.
大量 ADR 相关问题表明存在重大信息不匹配。我们回答了更多的问题，包括双重上市资格，南向资格，美国 ADR 的所有权，最后但并非最不重要的是，ADR 退市风险的真实的程度以及我们是否应该担心它。
Numerous follow-up questions since our report of 13 April – China Market-Wise: ADR Delisting Back on the Table – Our Take – signify to us that there is still significant information disconnect and misconception regarding the subject.
自我们 4 月 13 日的报告- 中国市场明智：ADR 退市回到桌面上-我们的看法 -以来，许多后续问题向我们表明，仍然存在重大的信息脱节和误解。
Signposts to gauge whether ADR delisting is becoming a more serious risk:
衡量 ADR 退市是否正在成为一个更严重的风险的标志：
1) Whether the US continues to refer to ADR delisting, and whether the US SEC kicks off a formal delisting process with conditions and timelines clearly defined;
1)美国是否继续参考 ADR 退市，以及美国 SEC 是否启动正式退市程序，并明确规定条件和时间表;
2) Whether Chinese ADR companies currently without dual-listing status start applying for HK listing soon;
2)目前没有双重上市地位的中国 ADR 公司是否很快开始申请香港上市;
3) Whether Hong Kong's and mainland China's regulators facilitate faster dual listing and Southbound inclusion.On April 14, Hong Kong Financial Secretary Paul Chan stated that he has instructed the SFC and HKEX to get ready accordingly. Should Chinese companies listed overseas wish to come back, Hong Kong must be the top choice for listing. We believe this could facilitate faster dual listing.
3)香港和中国内地监管机构是否会加快两地上市和港股通。4月14日，香港财政司司长陈茂波表示，他已指示证监会和港交所做好相应准备。如果在海外上市的中国企业希望回归，香港必然是首选。我们相信，这将有助于加快两地上市。
4) Whether there will be any signs of further escalation of capital market measures – i.e. restrictions or ban on investments in Chinese companies by US investors;
4)是否会有任何资本市场措施进一步升级的迹象-即限制或禁止美国投资者投资中国公司;
5) Whether China believes that US has shown enough sincerity to de-escalate the trade tension, and that both sides start to negotiate. This would be a rather lengthy process – see our report: Tariff War De-Escalation? Our Thoughts (23 Apr 2025).
5)中方是否认为美方有足够的诚意缓和贸易紧张局势，双方开始谈判。这将是一个相当漫长的过程-请参阅我们的报告： 关税战降级？我们的想法（2025 年 4 月 23 日）。
02FAQs on ADR Delisting
02ADR 退市常见问题解答
FAQs on ADR Delisting 关于 ADR 退市的常见问题
FAQ #1 – What are the requirements for HK dual listing? What are the hurdles for dual primary listing?
常见问题#1 -香港双重上市的要求是什么？双重主要上市的障碍是什么？
Background: For the time being, there are still four out of 23 ADR companies that do not have dual listing status in Hong Kong (PDD, Vipshop, TAL Education, and Legend Biotech), representing 3.3% of total MSCI China index weight (Exhibit 1). Investors are wondering whether those companies, if they want to, could obtain dual listing status relatively quickly.
背景： 目前，23 家 ADR 公司中仍有 4 家（PDD、唯品会、TAL Education 和 Legend Biotech）未在香港双重上市，占 MSCI 中国指数总权重的 3.3%（ 图表 1）。投资者想知道，如果这些公司愿意的话，它们是否能相对较快地获得双重上市地位。
For secondary listing, the requirements are quite straightforward: They pertain only to minimum market cap and minimum track record of trading on the primary exchange.
对于二级上市，要求非常简单： 它们只涉及最低市值和在主要交易所的最低交易记录。
- For companies with WVR (weighted voting rights):
对于具有加权投票权（WVR）的公司： - Listed for at least two years on a qualifying exchange (i.e., NYSE, NASDAQ, London Stock Exchange, etc.);
在合格交易所上市至少两年 （即，纽约证券交易所、纳斯达克、伦敦证券交易所等）; - Minimum market cap of HK$40bn at listing;
上市时最低市值为 400 亿港元 ; - Or minimum market cap of HK$10bn at listing and revenue of at least HK$1bn for the most recent audited financial year.
或上市时市值不低于 100 亿港元 ，而最近一个经审计财政年度的收入不低于 10 亿港元 。 - For companies without WVR: Either:
对于没有 WVR 的公司 ：
- Minimum market cap of HK$3bn at listing and listed for at least five years on a qualifying exchange;
上市时最低市值为 30 亿港元， 并在合资格交易所上市至少五年 ; - Or minimum market cap of HK$10bn at listing and listed for at least two years on a qualifying exchange.
或上市时市值不低于 100 亿港元， 并在合资格交易所上市至少两年 。
For dual primary listing in Hong Kong, the requirement is basically the samewith normal listing on the Hong Kong Exchange, with major requirements on market cap, revenue, cash flow, etc.
对于在香港双重第一上市，要求与在香港交易所正常上市基本相同， 主要要求为市值、收入、现金流等 。
- Profit test: Profit attributable to shareholders not less than HK$35mn in the most recent year and not less than HK$45mn in the two preceding years;
利润测试： 最近一年股东应占利润不少于 3500 万港元，过去两年不少于 4500 万港元; - Market cap/revenue/cash flow test: Market cap at least HK$2bn at the time of listing; revenue at least HK$500mn for the most recent financial year; operating cash flow at least HK$100mn in aggregate for the three preceding years;
市值/收入/现金流测试： 上市时市值至少为 20 亿港元;最近一个财政年度的收入至少为 5 亿港元;过去三年的经营现金流总额至少为 1 亿港元; - Market cap/revenue test: Market cap at least HK$4bn at the time of listing; revenue at least HK$500mn for the most recent financial year.
市值/收入测试： 上市时市值至少 40 亿港元;最近一个财政年度的收入至少 5 亿港元。
For existing secondary listings to convert to dual primary listing: A secondarylisted issuer could be regarded as a primary listed issuer if the majority of trading migrates to HK (i.e., 55% or more of the total worldwide trading volume, by dollar value) over the most recent financial year.
现有第二上市转换为双重第一上市： 如第二上市发行人的大部分交易转移至香港（即，55%或以上的全球总交易量，按美元价值）在最近的财政年度。
附件 1：MSCI 中国 ADR 成分股完整列表
附注：平均每日成交额涵盖2025/01/01至2025/04/11期间。
Source: FactSet, Morgan Stanley Research. Data as of April 11, 2025.
资料来源：FactSet，摩根士丹利研究。数据截至 2025 年 4 月 11 日。
FAQ #2 – In the event of a forced delisting, for ADRs with only a secondary listing status in HK, are they able to convert to HK primary listing easily?
常见问题2-如果被强制除牌，仅在香港第二上市的美国存托凭证能否轻易转换为香港第一上市？
Background: For companies with a primary dual listing in HK, in the event of a forced ADR delisting, they can make a seamless transition to being solely listed in HK, without any adverse impact on their listing status.
背景： 对于在香港双重主要上市的公司，如果 ADR 被强制退市，他们可以无缝过渡到在香港单独上市，而不会对其上市地位产生任何不利影响。
A secondary listed issuer will be regarded as a primary listed issuer in the event of delisting from the exchange of primary listing: HKEX normally grants 12-36 months' grace period to fulfill the financial statement reporting and listing rules, etc. It could also grant a grace period on specific listing rules on a case-by-case basis.
第二上市发行人如从第一上市交易所除牌，将被视为第一上市发行人： 香港交易所通常赠款 12 至 36 个月的宽限期 ，以履行财务报表申报及上市规则等规定。
- The company will have an automatic 12-month grace period for the preparation of financial statements in accordance with HKFRS/IFRS in the event of a delisting from the primary listing market.
若该公司从主要上市市场除牌，将自动获得 12 个月的宽限期，以便根据香港财务报告准则/国际财务报告准则编制财务报表 。 - For involuntary delisting from the overseas exchange, transitional arrangements apply for continuing transactions entered into before the issuer’s notification of the expected involuntary delisting to the Exchange so that the transactions are exempt from applicable listing rules (e.g. annual review, monetary caps) for three years from the date of the delisting notification.
至于从海外交易所非自愿除牌，过渡性安排适用于发行人向本交易所发出预期非自愿除牌通知前已订立的持续交易 ，使有关交易在发出除牌通知日期起计三年内获豁免遵守适用的上市规则（例如年度检讨、金额上限）。 - In the event that an overseas issuer anticipates difficulty in complying with specific applicable listing rules (e.g., insufficient preparation time in view of the delisting timetable), a grace period may be granted in respect of specific listing rules on a case-by-case basis.
如海外发行人预期难以遵守特定适用的上市规则（例如，由于除牌时间表所限，准备时间不足），则可按个别情况就特定的上市规则给予宽限期。
FAQ #3 – When/how can dual-listed companies be included in Southbound? What's the Southbound inclusion review schedule?
常见问题#3 -何时/如何将双重上市公司纳入南向？南行纳入审查时间表是什么？
Background: Southbound eligibility could provide sizable liquidity support for qualified stocks. YTD Southbound has received net inflow of US$80bn as of April 22, compared to 2024's total Southbound net inflow of US$103bn. YTD on a daily average basis Southbound net inflow represents 22% of thr Hong Kong market's daily turnover.
- Currently only primary dual-listed stocks can be included in the Southbound program.
- Secondary dual-listed stocks are not eligible for the Southbound program.
Regular Southbound inclusion review schedule – occurs semiannually: Companies' eligibility for Stock Connect would be confirmed on first Friday of September or March, two out of four HSCI (Hang Seng Composite Index) rebalancing days annually (June and December being the other two).
Southbound Fast Entry: In September 2024, the Hang Seng Index announced a new fast entry rule to be applied to Stock Connect inclusions. If a company changes its listing status from secondary listing to primary listing, and its market cap ranks in the top 10 in the Stock Connect index, it could be added to the index in the next monthly rebalancing, if it is eligible for Ssouthbound inclusion.
We believe this could offer fast entry inclusion for the large-cap Internet stocks and provide timely liquidity support from Southbound investors.
FAQ #4 – What's the US ownership share of major ADRs? How to convert the ADRs to HK shares? Any restrictions for US investors on investing in the HK line?
Background: Foreign investors, particularly those from the US, are likely to be the most sensitive to ADR delisting risk, because they may perceive such development as US/China non-tariff geopolitical tension escalation, which may lead to further investment-related restrictions.
We highlight the US ownership percentage for major ADRs in the table below.
On average, US investors hold around 20% of shares for the top 30 ADR companies (Exhibit 2).
How to convert ADR holdings into HK shares: Investors could typically instruct the custodian to convert ADRs into Hong Kong shares. The depositary receipts will be canceled, and the custodian will deliver the Hong Kong shares to the investor electronically at a reasonable cost.
Among the top 30 ADRs, seven of them are only listed in ADRs, including PDD, Full Truck, Futu, Zeekr, VIPShop, TAL Education, and Atour. All of them are eligible for dual listing in HK, according to the listing rules of HKEX.
Source: Factset, Morgan Stanley Research. Data as of April 22, 2025.
Potential restrictions on US investment in Chinese equities: There are certain investment mandates that limit their investment to US market-traded securities only. While there are no statistics on their size, we believe their representation in Chinese ADR ownership should be really tiny. On the other hand, the America First Investment Policy memo signed by the Trump administration on February 21, 2025 stated that it will consider applying restrictions on investment types including private equity, venture capital, greenfield investments, corporate expansions, and investments in publicly traded securities, from sources including pension funds, university endowments, and other limited-partner investors.
At the moment there is no legal or regulatory power associated with this memo, and there is no further indication of conclusion or action plans regarding scope, and timeline, etc.
We've seen a rapid decline of US investors' ownership representation in Chinese equities overall over time (Exhibit 3, Exhibit 4) – their total ownership as a share of MSCI China in its entirety (vs. total market cap.) has declined from 17.4% in 2018 to 10.8% by the end of 2024. As a result, their pricing power has been decreasing, and for non-US investors, we believe this could be an opportunity to focus on bottom-up stock picking and buying the dip.
Analysis of previous events of stocks being restricted from US investors (i.e., China Mobile and CNOOC were part of the Executive Order that was effective from January 11, 2021) or put on a preliminary Entity List (e.g., Tencent was on a US Department of Defense Entity List published on January 6, 2025) shows that despite temporary disruption, eventually these companies' stock prices would have a chance to recover and reward investors as long as the fundamentals stay strong.
FAQ #5 – How real is ADR delisting risk? Should we be really worried about it?
Background: As we stated in our previous report – China Market-Wise: ADR Delisting Back on the Table - Our Take (13 Apr 2025) – this time around the ADR delisting risk has been put "back on the table." Between 2020 and 2022, we had experienced the previous round of major ADR delisting dispute, which was triggered by audit compliance dispute.
The 2020-2022 ADR delisting dispute was triggered by audit compliance issues and was resolved in late 2022; therefore, it should not trigger a new round of ADR delisting: China agreed to provide access to original audit work papers to a US government agency, namely the Public Company Accounting Oversight Board (PCAOB). See our report back then – China Equity Strategy: PCAOB confirms complete access to ADR audit; reiterate overweight stance (15 Dec 2022).
Ever since then, the PCAOB has not indicated major issues on the audit front during its annual inspections, and no more Chinese ADR companies have been alleged to have non-compliance problems based on the Holding Foreign Companies Accountable Act (HFCAA), which provides the legal foundation for a potential forced delisting based on audit flaws.
What could constitute new reasons to reinitiate ADR delisting?
VIE concern could be one but would need new a legislative or regulatory foundation: Since 2020, Variable Interest Equity (VIE) structure has been highlighted by the US SEC as a risk to investors, with special disclosure being required for Chinese ADRs that use such a structure. See December 2020 SEC disclosure guidance and the July 2021 SEC statement.
That said, so far there is no official document similar in nature to the HFCAA that could offer a clear legislative and regulatory basis to link poor VIE risk disclosure practices to official initiation of a delisting process. As a result, we believe there is a missing link that needs to be established before concerns over VIE structure can lead to delisting concerns, and the US government and SEC will need to supplement that. Clear guidance regarding delisting triggers as well as time frame needs to be defined. For example, the HFCAA specifies a three-year review period before the final delisting takes place.
Based on past experience, forced delisting would be an extended and lengthy process and may not necessarily happen: That's because the SEC normally needs to give clear protocols for companies to fix their issues and comply before forced delisting finally happens.
As a result, we are not really worried about this as a near-term risk.