For investors who own Chinese ADRs in companies like Alibaba (Ticker: BABA), the risk of delisting has been persistent since the Trump administration era. If you hold BABA ADRs, you may be wondering how to convert your ADRs to Hong Kong shares as not all brokers provide this service, and the process is not straightforward.
But don’t worry! In this article, we’ll try to walk you through the process and let you know your options, the brokers that allow conversion of Alibaba ADR to Hong Kong shares, and how to request conversion.
Chinese companies delisting threats
The negative sentiment around Chinese stocks listed in the US has always been present. It escalated following Didi’s delisting from the New York Stock Exchange after only six months of its IPO. The main reason for delisting was that the Chinese regulators opposed the US information demands due to concerns about leakage of sensitive data and cybersecurity threats.
Investors became more worried that the same could happen to other large Chinese firms listed in the US like Alibaba (also listed on the Hong Kong stock exchange – HKSE).
Additionally, the trend of conversions from Alibaba ADRs to Hong Kong shares has increased over the last year as Chinese regulators expanded their oversight of large tech firms and are facing stricter disclosure requirements from the US. In fact, over 270 Chinese companies are facing delisting threats due to a long-standing concern over their audit compliance, with US regulators asking for full access to the companies’ documents held in China.
What Happens if a Stock is Delisted?
Delisting a stock means removing it from an exchange. Thus, the stock will no longer be traded on that particular stock exchange. In Alibaba’s case, it wouldn’t be traded on the NYSE. In that scenario, it could still be traded over-the-counter (OTC), but liquidity risk rises as fewer traders are ready to purchase or sell the stock, and the spread between buying and selling prices widens.
Yet, Alibaba is listed on the Hong Kong stock exchange (HKSE) with the ticker “9988.” Despite the risk of delisting from the NYSE, this does not affect the stocks listed in Hong Kong. As a result, the investors’ conversion from ADRs to HK shares is for precautionary purposes. Remember that Alibaba ADRs or HK shares provide the same level of exposure to the Alibaba business group.
How to convert your Alibaba ADRs to Hong Kong shares?
If you prefer to hold regular shares rather than an ADR, you must request the conversion through your broker. The conversion process might take up to two business days (depending on Hong Kong and US working hours) following your submission. We list below the main steps that should be followed to complete the conversion (as described by Citibank, which acts as Alibaba depositary in New York):
- Contact your stockbroker: Get in touch with your broker’s customer support requesting the conversion from ADRs to ordinary stock shares, as many brokers do not offer this service. If that’s your case, jump to the alternatives.
- Submit the conversion request: Your broker will provide you with the conversion form that must be completed, which gives them the authority to act on your behalf and convert your shares. This process can be done electronically on the broker’s website or platform.
- ADRs cancellation: Citibank New York will cancel the ADRs and instruct its custodian, Citibank Hong Kong, to “withdraw” the underlying ordinary shares.
- Delivery and custody: Once the conversion is completed, the ordinary shares may be deposited into your account electronically.
Finally, you need to know that converting ADRs to ordinary shares will have associated fees. There will be an ADS cancellation fee, which the depositary bank charges. Your broker may also charge an additional fee for providing this service and helping facilitate the conversion, and potential fees and taxes might arise due to trading shares on the HKSE.
Brokers that convert Alibaba ADRs to Hong Kong ordinary shares
While most brokers do not offer ADR conversion services like BABA to 9988, two global do: Freedom24 and Interactive Brokers.
An online broker offering stocks, ETFs, bonds, futures, and options on major American, Asian and European exchanges and provides an opportunity to buy new stocks at IPO price for individual investors. It allows the conversion from ADRs to stocks in other exchanges.
Disclaimer: Investments in securities and other financial instruments always involve the risk of loss of your capital. Buying stocks at IPO prices may involve additional restrictions.
Founded in 1978, IBKR is one of the world’s most trustworthy brokers. It offers an enormous range of financial products (stocks, ETFs, Options,…), and low currency conversion fees (FX fees). Conversion of ADRs is also available.
Interactive Brokers also launched IBKR GlobalTrader, a modern mobile trading app to trade Stocks, Options and ETFs, ideal for novice investors.
Freedom24 at a glance
Founded in 2008, Freedom Finance (acting through Freedom24 online trading platform) is a European broker known for its exclusive feature of IPO subscriptions. They let you trade newly listed US, EU, and Asian companies at IPO prices, in addition to thousands of trading instruments, including stocks, ETFs, bonds, futures, and options on major global exchanges. They do not have a minimum deposit for general trading and have very low commissions on stock and ETF trading. On the downside, they charge a €7 fee per withdrawal.
Freedom24 lets you convert your Alibaba ADRs to ordinary shares, you can check here the whole conversion process. They described in detail the steps of converting Russian ADRs to ordinary shares following the Russian-Ukrainian conflict, but the same steps apply to the Alibaba ADR conversion. Regarding fees, Freedom24 applies a 3% conversion fee to the value of converted shares at the execution time with a minimum fee of $50.
If you want to learn more, check our Freedom24 Review.
# Interactive Brokers
Interactive Brokers at a glance
Founded in 1978, Interactive Brokers is a global online broker that is publicly listed on the NASDAQ exchange (IBKR) and offers a wide range of products from many exchanges worldwide. Interactive Brokers offers an advanced investment platform that includes a wide range of products (stocks, options, mutual funds, ETFs, futures, bonds, and currencies) from 150 markets and a set of technical and fundamental tools to help you in your investment decisions.
Interactive Brokers lets you convert your Alibaba ADRs to ordinary shares, you can check here the whole conversion process. As for the fees, Interactive Brokers charges a commission of $500, a cablewire fee of $17, a redemption fee of $0.05 per share, and any external costs that might arise.
Want to know more about Interactive Brokers? Check our Interactive Brokers Review.
Who is eligible to request a conversion?
Any holder of an ADR is eligible to request a conversion to ordinary shares, assuming the broker is offering this service.
What is the timeframe for converting Alibaba ADRs to ordinary shares?
Usually, it can take up to three business days following the request submission.