Exclusive: Alibaba Eyes $10 Billion Hong Kong Listing

By Hou Qijiang, Qu Yunxu and David Kirton

Alibaba’s headquarters in the eastern Chinese city of Hangzhou in May 2018. Photo: IC Photo

E-commerce juggernaut Alibaba Group Holding Ltd. plans to raise $10 billion through a second listing in Hong Kong, a source close to the deal told Caixin, in what could become the market’s largest new offering in almost a decade.

A float of that size would mean around 2.3% of the company’s shares will be available, based on the company’s current valuation of around $430 billion. Alibaba did not respond to Caixin’s request for confirmation of the listing and its scope. Rumors of the deal have circulated for months, although earlier reports put the fundraising target higher at $20 billion.

The deal is being underwritten by Credit Suisse Group AG and China International Capital Corp. (CICC), China’s oldest investment bank, sources previously told Caixin.

Such a listing would mark a major victory for Hong Kong, which lost out to New York to host Alibaba’s blockbuster $25 billion initial public offering (IPO) in 2014. A second listing could help Alibaba bolster its already sizable cash reserves, while also making its shares more accessible to investors in its home market on the Chinese mainland, analysts said.

Alibaba has no shortage of cash, with about $29 billion at the end of March according to its latest earnings report. The company reported revenue of 377 billion yuan ($55 billion) in its last fiscal year, up 51% on a year earlier, and a net profit of 86.7 billion yuan, up 37%.

“The second listing is as much about accumulating dry powder for a potential China downturn as it is about diversifying any risk of U.S. authorities imposing stricter reporting requirements for Chinese companies,” said Tony Nash, founder of market forecasting firm Complete Intelligence.

Proceeds from the new float are expected to provide a liquidity boost and reduce its financing costs, as it looks for new engines of growth to offset any potential slowdown in its core e-commerce business from a cooling economy, and as it aggressively expands its brick-and-mortar supermarket chain Hema.

The move may also help Chinese mainland investors gain a slice of Alibaba through the Stock Connect Program, which allows mainland investors to trade Hong Kong-listed shares, said one analyst who follows China internet stocks at a boutique brokerage in Hong Kong.

“I kind of see it as a ‘who cares’ story,” he said. “If you want to buy the stock … you buy in New York. Maybe there will be some demand from large investors who have to hold the name and manage Hong Kong dollar funds in this time zone, but I don't really see this as a game changer.”

Hong Kong’s bourse looked on in envy in 2014 when the tech giant listed in New York, raising $25 billion in what became the largest IPO in history. At that time, Hong Kong’s board did not accept companies with Alibaba’s “WVR” structure, which gives founding partners greater control over the company than shareholders. Hong Kong has since amended the rules, with Charles Li, the chief executive of Hong Kong’s exchange, saying in March that he would welcome Alibaba “to come home and settle down.”

Analysts have said the Hong Kong listing would also represent a political win for China, which has sought to attract its major tech companies listed abroad to list at home as well. Last year, regulators in Beijing proposed a pilot program to allow trading in Chinese depositary receipts (CDRs) to entice tech giants to float shares at home. But that plan was ultimately scrapped during a period of high volatility for Chinese stocks.

Alibaba could also be pursuing the IPO as a hedging strategy in the event of greater trade tensions and increased scrutiny over Chinese tech firms listed in New York, Nash said.

Earlier this month, the company proposed an 8-for-1 stock split, aiming to attract more price sensitive, smaller scale investors who might be put off by its current New York share price of about $169.

If Alibaba completes the deal as planned, the $10 billion raised will constitute Hong Kong’s biggest listing since insurer AIA Group Ltd. raised $17.8 billion in 2010.

Contact reporter David Kirton ([email protected])

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