The Chinese e-commerce giant has two things going for it that could help as it preps a potential second listing in Hong Kong: a profitable business and a history of returns for stock investors.
“Alibaba is profitable and has a great cash flow — its growth has been stellar,” said Hao Hong, chief strategist for Bocom International Holdings Co. “People wouldn’t perceive this kind of deal negatively.”
The company is considering seeking about $20 billion from a first-time share sale in Hong Kong, people with knowledge of the matter said this week. While Alibaba readies its pitch, most major tech listings globally over the past year are trading below their offer prices, with the average deal losing IPO investors 13%, data compiled by Bloomberg show.
A rash of other tech companies including Postmates Inc., Slack Technologies Inc. and WeWork Cos. that are planning to sell shares in 2019 will be competing for investors’ attention. Alibaba’s track record in the public markets could give it a leg up over the other listing hopefuls.
Since Alibaba started trading in New York in 2014, its shares have more than doubled, giving the company a market value of about $398 billion. That compares with a 41% gain in the benchmark S&P 500 index over the same period. Coming to Hong Kong for a second listing will also allow Alibaba to tap the city’s legions of mom-and-pop investors, who are reserved a slice of every main board listing.
History shows how they can boost a deal. When Alibaba’s business-to-business marketplace listed in Hong Kong in 2007, retail punters placed orders for 257 times the amount of stock they were initially offered. That allowed Alibaba to increase the portion of shares set aside for them to a quarter of the entire deal, up from 15% initially.
The frenzy sent shares of Alibaba.com Ltd. soaring, ending their first day up 193%. While Alibaba took the unit private before later pursuing a group listing in New York, it may be hoping for a similar response this time around.
“The amount of the interest that Alibaba can gather from retail investors that invest in Hong Kong IPO shares is going to be enormous,” said Stephen Peepels, head of U.S. securities for Asia Pacific at law firm Hogan Lovells. “It’s going to have the world’s attention.”