Retreat from The Street: Alibaba Aims to Raise $20 Billion in Hong Kong Listing

June 23, 2019

3 min read

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What's going on here?

Alibaba intends on having a second public listing on the Hong Kong stock exchange (HKEX) where it aims to raise around $20 billion.

What does this mean?

This will be Alibaba’s second listing, following its record-breaking 2014 IPO on the New York Stock Exchange which raised $25 billion. The decision comes as a result of the HKEX changing some of its rules. Alibaba was forced to choose the New York Stock Exchange to go public after the HKEX banned Alibaba from listing due to the company’s corporate structure, that only allows founding partners to have a say on board appointments. Now, so-called “innovative companies” from China can do a secondary listing on the HKEX, regardless of whether their shareholder structure complies with the HKEX’s regulation. If Alibaba succeeds in achieving a $20 billion valuation on the HKEX, it would be Hong Kong’s fourth largest ever listing.

What's the big picture effect?

In the midst of the US-China trade war and the Huawei crisis, Alibaba’s second listing in Hong Kong is as much of a geopolitical move as a financial one. This is a strong statement that Alibaba wishes to align itself with Beijing in these turbulent and uncertain times. Other Chinese companies such as SMIC (China’s largest semiconductor manufacturer) have shown an even stronger alliance to Beijing by withdrawing from the New York Stock Exchange.  In retaliation, many US traders are calling on Trump to “curb China’s access to Wall Street”. It is a far cry from the optimism of a symbiotic economic relationship between the US and China that was symbolised by Alibaba’s record-breaking IPO in 2014.

Moreover, Alibaba is interested in boosting its valuation from a strong base of local investors. Listing on the HKEX would also allow Alibaba to make inroads into onshore markets in Shanghai and Shenzhen. The move will give the HKEX the much-needed revitalisation it was hoping for when it made its regulatory changes in October last year. As Stephan Chan (a Partner at Dechert) explained: “[this is] a major boost for Hong Kong in maintaining its top spot in the global IPO market”.

However, there are some significant advantages that the New York Stock Exchange boasts over the HKEX. With Wall Street’s growth being 2.5% greater than the HKEX’s, and the fact that Wall Street is more easily accessible means that there are still some doubts about the HKEX’s long-term future success. According to lawyers, the costs of Alibaba preparing to list can rise to around $5 million before the company has even submitted its application. And after all that, success is far from guaranteed. This has been highlighted by two sizeable Chinese tech firms (Xiaomi and Meituan Dianping) who have seen their share prices fall significantly below the HKEX’s benchmark, following their second listings.

Despite the HKEX’s expensive vetting process, Alibaba’s entry into the HKEX is a vote of confidence for both the HKEX and Beijing, that could encourage other Chinese tech firms to do the same.  

But Alibaba will be under great scrutiny and its decision could be indicative in showing who has the upper hand in the US-China conflict in capital markets. Can Alibaba live up to expectations?

Report written by Will H

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