Bending the rules
Caving in to Alibaba’s demands for its IPO may risk undermining the integrity of the Hong Kong market.
Hangzhou-based e-commerce giant Alibaba is obviously pulling out all the stops to convince the government of the Hong Kong Special Administrative Region to clear the way for its IPO by bending the rules.
Shortly after the company’s CEO Jonathan Lu blasted the Hong Kong authorities for their lack of knowledge about Internet enterprises, his boss, chairman Jack Ma, invited a group of Hong Kong reporters from various media to Alibaba’s headquarters in scenic Hangzhou to make a personal plea.
From the reports of that meeting, it was clear that Ma didn’t break any new ground. Instead, he was seen to be harping the same theme that his company is special and therefore it should be treated differently.
This is not going to convince too many in Hong Kong. What Ma may have missed is that bending the rules for his company would almost certainly stir a controversy that the Hong Kong government can ill afford at this time.
From the very beginning, Alibaba was too full of confidence, believing that the Hong Kong authorities would throw the rules out of the window to welcome it with open arms. That obviously was not the case.
ere was talk about Alibaba bringing its IPO to New York, or, some reports suggested, London. Market rules in the United States apparently have made provisions to accommodate some of Alibaba’s requirements. Those provisions were introduced to help domestic e-commerce companies to tap stock market capital. Hong Kong has no such needs.
Alibaba is not rushing into the US largely because that market is noted for its tough disclosure requirements and a large contingent of litigation-happy shareholders and investors. Hong Kong is the Goldilock’s choice for Alibaba except for a provision in the rules that require all shareholders to be treated equally.
To convince the authorities to change the rules just for it, Alibaba has to demonstrate that its listing can bring real benefits to Hong Kong other than the many millions of dollars in fees to a few international investment banks, which are not going to leave because there is no shortage of other opportunities. Many mainland enterprises, particularly the regional banks, are lining up to float on the Hong Kong stock exchange.
Ma and his lieutenants may not fully appreciate the importance of consistency in a rule-of-law market environment so meticulously established by the Hong Kong government over the past several decades to attract long-term investment funds from overseas institutions.
Caving in to Alibaba’s demands could risk undermining the integrity of the market and the efforts to maintain an image of trustworthiness.
Once a bad precedent is set, it can be expected that other companies will be making all kinds of requests to accommodate their individual needs. This would make a mockery of the securities ordinance that is shaped by the principle of fairness and transparency.
Ultimately, Hong Kong people would ask what’s in it for them. Alibaba doesn’t have a presence of any significance in Hong Kong. Its contribution to the Hong Kong economy is minimal at best. A listing of the company’s shares in Hong Kong would benefit it much more than Hong Kong.
As such, the party that should make compromises is Alibaba, not Hong Kong. It must learn to play by the same laws as others.