BABA ADRs: How to convert Alibaba ADRs to Hong Kong Shares?

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 the 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.

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.

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):

1. 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 alternative.
2. 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.
3. ADRs cancellation: Citibank New York will cancel the ADRs and instruct its custodian, Citibank Hong Kong, to “withdraw” the underlying ordinary shares.
4. 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.

While most brokers do not offer ADR conversion services like BABA to 9988, one global does: Interactive Brokers.

While the possibility of Alibaba’s delisting from the US might still be low, investors worldwide are keeping an eye on every development from the US and Chinese authorities.

Nevertheless, many investors are increasingly inclined to sell their ADR shares in exchange for Hong Kong ownership. In case you were wondering how you can convert your Alibaba ADRs into ordinary Hong Kong shares, we highly believe that Interactive Brokers will satisfy your needs.

This article is not intended to encourage investors to convert their shares, it is instead solely for informational purposes. So, it is best to do your research and due diligence before proceeding.

Other FAQs

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.