Why is Chinese e-commerce giant Alibaba listing in Hong Kong?

REUTERS/Aly Song

Chinese e-commerce giant Alibaba is set to price its first share sale in Hong Kong next week, raising up to $13.4 billion in what will be the largest deal in the city since 2010 and the world’s biggest ever cross-border secondary listing.

Why is Alibaba listing in Hong Kong?

Analysts say establishing a base outside the United States gives the U.S.-listed company options, especially in the light of the U.S.-China trade dispute.

It is an “escape valve listing”, said Travis Lundy, an analyst at Quiddity Advisors who publishes on SmartKarma.

“Investors can take delivery or buy and sell shares (in Hong Kong) should U.S.-China relations worsen. This should be considered a non-negligible benefit for any U.S.-listed Chinese company,” he added.

Alibaba, which is due to start trading on Nov. 26 in Hong Kong, could also benefit from Chinese demand.

While it will not be eligible for trading until June in the Stock Connect that links Shanghai and Shenzhen with Hong Kong, analysts and investors expect demand from mainland mom-and-pop investors to lift its valuation.

Alibaba‘s Hong Kong deal is technically small versus its $476 billion market capitalisation and it will dilute existing shareholder by just 2.8%, the company calculates.

Why not list in Shanghai or Shenzhen?

Alibaba is essentially too big for its home market.

China hosts the world’s No.2 pool of equity capital, but local share sales are usually much smaller than in Hong Kong.

While Alibaba holds the record for the world’s biggest initial public offering, with its $25 billion New York listing in 2014 – pipping Hong Kong which hosted Agricultural Bank of China’s $22 billion deal in 2010, China’s biggest IPO in the past decade was the $7.3 billion float in 2009 of China State Construction Engineering Corp <601668.SS>, Refinitiv data shows.

Beijing is working to help fast-growing start-ups list at home as well as lure back those that got away, including Alibaba. This year it launched the STAR Market to host innovative earlier-stage companies under a less controlled, more Nasdaq-style listing system – a first for China.

Why is it a big deal for Hong Kong?

Alibaba postponed its listing plans over the summer as political protests that began in June worsened.

The company’s decision to push ahead now will be seen as a vote of confidence in Hong Kong’s financial future even as protests grow increasingly violent.

The listing is also the culmination of six-plus years of argument, consultations and rule changes that all stemmed from Alibaba‘s decision in 2013 to list in New York, not Hong Kong.

That was driven by the city’s refusal to ease its one-share-one-vote stance to accept Alibaba‘s unusual governance, where a self-selecting group of company insiders control the majority of board seats.

Many market participants felt being able to trade Alibaba alongside arch-rival Tencent  would have encouraged other tech companies to follow suit – rebalancing Hong Kong’s reputation for hosting stodgy Chinese state-owned enterprises and local tycoon-controlled conglomerates.

Last year, bourse operator Hong Kong Exchanges & Clearing <0388.HK> pushed through rules that allowed firms to list with different classes of shares, opening a path for tech giants listed elsewhere such as Alibaba to sell shares in the city.

Alibaba is the first to do so, although others are expected to consider following the same path.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

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Following vacancies can be applied for (only in Singapore).   

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  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.