Exclusive: US regulators to probe audits of Alibaba, JD.com and other Chinese firms

HONG KONG, Aug 31 (Reuters) – U.S. regulators have singled out e-commerce major Alibaba Group Holding Ltd. (9988.HK) and JD.com Inc (9618.HK) Other U.S.-listed Chinese companies are up for regulatory scrutiny starting next month, people with knowledge of the matter said.

The choice follows a landmark audit agreement between Beijing and Washington on Friday that allowed US regulators to audit accounting firms in mainland China and Hong Kong, ending a long-running dispute that has threatened to delist more than 200 Chinese companies from US stock exchanges. read more

Technology duo Yum China Holdings Inc (9987.HK) – The owner of KFC, Taco Bell and Pizza Hut restaurants in China has been told that they are among the first batch of Chinese companies whose audits in Hong Kong will be scrutinized by the US audit body, the Public Company Accounting Oversight Board (PCAOB). The people who spoke to Reuters declined to be identified due to privacy restrictions.

Alibaba, JD.com and Yum China’s respective accounting firms – PwC, Deloitte and KPMG – have also been informed of the audit, the people added.

Alibaba, JD.com, Yum China and the China Securities Regulatory Commission did not respond to requests for comment.

Spokesmen for PwC and Deloitte said it was company policy not to comment on client matters. KPMG declined to comment on the matter.

A PCAOB spokesman said Tuesday that the board does not comment on audits. The monitor could not be reached outside US business hours on Wednesday.

Alibaba’s U.S. shares rose about 1% in premarket trading and closed up about 3% on Tuesday after the Reuters report. Its Hong Kong shares pared losses to about 1% on Wednesday afternoon after falling more than 3% in the morning.

US regulators have demanded access to audit documents of US-listed Chinese companies for more than a decade, but Chinese authorities have been reluctant to allow US regulators to inspect accounting firms in China, citing national security concerns.

Alibaba, which went public in New York in 2014 in what was then the largest listing in history, is the most valuable Chinese firm to list in the United States on Tuesday, with a market value of $248 billion.

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On Friday, the PCAOB said it had notified the selected companies without naming them and that it expects its officials to land in Hong Kong, where inspections will be conducted, by mid-September.

The regulator, which oversees the audit of US-listed companies, said it selected companies based on risk factors such as size and sector, and said no company would expect special treatment. read more

Reuters could not immediately determine how many or which other Chinese firms were in the first batch of US inspections.

Alibaba was founded in 1999 with e-commerce as its core business. It has expanded in recent years into fast-growing sectors such as cloud services and the Internet of Things, and also owns AutoNavi, a major Chinese digital mapping and navigation firm.

In July, Alibaba was added to the US Securities and Exchange Commission’s (SEC) list of Chinese companies that could be delisted if they failed to comply with audit requirements. read more

The list currently includes more than 160 Chinese companies, including JD.com, Yum China and electric car maker Nio Inc.

Current U.S. regulations call for Chinese companies that do not comply with audited employee documentation requirements to cease trading in the United States in early 2024.

Days before being added to the SEC’s delisting watch list, Alibaba said it plans to add a main listing in Hong Kong to its New York presence, targeting investors in mainland China. read more

The tech behemoth, which has already been on the Hong Kong stock exchange since 2019 with a secondary listing, said it expects the initial listing to be completed by the end of 2022.

In mid-August, Yum China said it was applying for an initial listing in the city as it avoided the risk of being delisted from New York. read more

The company expects to complete the conversion from its current secondary listing status to primary listing in October, subject to shareholder approval.

Reporting by Julie Zhu in Hong Kong; Additional reporting by Katanga Johnson in Washington; Edited by Sumeet Chatterjee and Christopher Cushing

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