Alibaba's stellar HK debut

Asian businesses now have access to large, new capital

The listing of e-commerce giant Alibaba in Hong Kong (HK) in a secondary offer last week has many implications. Alibaba listed on the New York Stock Exchange (NYSE) in 2014, raising a record $25 billion. The offer in HK raised over $11 billion, by selling 2.8 per cent of stock. It is the largest initial public offering (IPO) of 2019 and can get even bigger, swelling to over $13 billion, if institutions exercise all their greenshoe options. The IPO is an endorsement of the relaxation of rules by HK’s market regulator. Alibaba has a complex corporate structure with dual-class equity; shares controlled by the founders have more votes. This was not permissible under HK’s earlier rules, by which all listed firms had to have the “one share-one vote” structure.

The Alibaba prospectus says it will use the funds to move into consumer-focused services like travel booking and video streaming, as well as making investments to improve its supply chain, logistics, and payment ecosystems. It is also ramping up its presence in cloud computing and machine learning. Alibaba claims it has 730 million annual active e-commerce consumers in Mainland China alone, and its mobile payment platform, Alipay, has 900 million active users. The company will qualify for HK’s Stock Connect scheme in June 2020. Then Mainland investors in Shanghai and Shenzhen will be able to buy the stock in Hong Kong. While the stock has gained 13 per cent in the first week of listing, another boost to market capitalisation is very likely once that happens. As it is, at least a third of the HK offer has been picked up Mainland funds, while Taiwanese investors have also made substantial bids.

Alibaba’s successful debut in HK might lead to other major Asia-based businesses seeking to list in that country under the new relaxed rules. It could even lead to more dual listings from firms seeking to tap different pools of capital across Asia and the US.

Such initial public offers may be attractive especially for Chinese concerns. The Stock Connect scheme allows them to access HK capital (the HK dollar is convertible) as well as the yuan (not convertible). There are at least 12 Chinese companies listed in the US, with market caps of above $10 billion (Alibaba is over $500 billion). But trade war hawks in the Trump Administration have suggested the US restrict access to American capital for Chinese firms. This could happen if the US-China trade war escalates further. HK could offer an alternative avenue to tap capital if it becomes harder for Chinese concerns to access US exchanges.

Investors in HK, or Singapore, may also be more receptive to listings by Indian technology companies, as well as other Asian technology businesses. Investors in HK have a better feel for conditions in Asian economies and, hence, more confidence in potential unicorns based in Bengaluru, Manila, or Jakarta. Traders will respond positively to dual listings, or multiple listings, since they offer them chances to arbitrage and hedge price volatility. The success of Alibaba’s IPO could, therefore, lift sentiment in the troubled HK economy and might encourage entrepreneurs across the entire continent by offering them access to a large, new pool of capital.