Alibaba may turn to US for IPO
ALIBABA Group Holding’s talks for a Hong Kong listing broke down as management sought to keep control after going public, prompting the firm to move towards a New York initial offering.
ALIBABA Group Holding’s talks for a Hong Kong listing broke down as management sought to keep control after going public, prompting the company to move towards an initial offering in New York, two people familiar with the matter said yesterday.
China’s largest e-commerce company is seeking US law firms to help with an initial public offering (IPO) and has not hired banks yet, said one of the people, who asked not to be identified.
Alibaba declined to comment on developments yesterday. The company wanted partners to nominate most of the board, a person familiar with the matter said last month.
Investment banks have valued Alibaba, founded by former English teacher Jack Ma, at as much as $120bn, which would make it the thirdbiggest internet company behind Google and Amazon.com based on market capitalisation. Losing the Alibaba IPO would be a blow to Hong Kong, which does not allow dual voting classes on new listings and has not hosted a first-time share sale of more than $4bn since October 2010.
“Jack Ma really insisted on the partnership structure,” said analyst at RHB Research Institute in Hong Kong Billy Leung. “If you give it to them then you give it to everyone. Alibaba has been waiting for so long, they just said let’s go to the US.”
Hong Kong Exchanges and Clearing spokeswoman Lorraine Chan declined to comment, citing a company policy against commenting on individual cases.
For weeks, Alibaba and the exchange discussed the company’s proposal to give partners control over most board nominations, effectively creating two classes of shareholders. That would let Mr Ma, who owns 7.4% of the stock, and his managers run the company without worrying about being pushed out by an activist investor with a different strategy.
The company had 28 partners as of September 10, Mr Ma said, including co-founder Joseph Tsai and CEO Jonathan Lu.
Alibaba was likely to list on the New York Stock Exchange rather than the Nasdaq Stock Market and was in talks with banks, a person familiar with the matter said.
It may appoint underwriters by the end of this year, the person said. While a final decision had not been made, it may use a partnership structure similar to what it proposed in Hong Kong, the person said.
Alibaba could raise about HK$100bn ($12.9bn) in an initial sale, E&Y said on June 28. That would make it the world’s biggest IPO since Facebook raised $16bn in May last year, and Hong Kong’s largest since AIA Group’s $20bn sale in October 2010, according to data.
Mr Ma started Alibaba in his Hangzhou flat in 1999 with two dozen items for sale, and the company’s expansion mirrors China’s emergence as an economic superpower.
The company now has 24,000 staff and generates about 70% of package deliveries in China. Customers bought at least 1-trillion yuan ($163bn) worth of goods via Alibaba last year.
The success has made Mr Ma one of China’s richest people with an estimated net worth of $3.7bn, according to the Bloomberg billionaires index.
There is still room for growth. China has 591-million internet users, greater than the population of any other country except India, and McKinsey estimates China’s internet retail market will triple to $395bn from 2011 to 2015. In a July 17 report, Evercore estimated an Alibaba IPO could value the company at $120bn, based on a forecast that operating profit could reach $7.1bn next year. Goldman Sachs on July 22 put Alibaba’s value at about $105bn. Google has a market capitalisation of $296bn; Amazon $144bn and Facebook, owner of the world’s largest social network, $118bn, according to data.
Billionaire Pony Ma’s Tencent, operator of the WeChat instant-messaging service, is the biggest Hong Kong-traded internet company with a market value of $98bn.
The IPO of Mark Zuckerberg’s Facebook valued the company at $104bn, and the shares lost as much as half their value in the first few months of trading before starting to recover. The stock closed at $48.45 on Tuesday in New York, compared with its $38 offering price.
Alibaba is considering a more conservative valuation than Facebook for its IPO, a person with knowledge of the matter said earlier this year. It bought back a 20% stake from Yahoo last year in a deal that valued the Chinese company at $35bn.
Alibaba’s profit in the latest quarter tripled from a year earlier to $669m, Yahoo said in July. Facebook earned $217m in the same period and Tencent posted net income of 4.04-billion yuan. Japan’s SoftBank owns about 37% of Alibaba and Yahoo about 24%, the firms said separately in July.
Hong Kong’s bourse does not allow share classes with different voting rights, as the US does. Such arrangements helped Mr Zuckerberg and Google co-founders Larry Page and Sergey Brin keep control of their companies after they went public.
“They can go to the US and accept the US environment with more stringent reporting requirements and a class action litigation system and benefit from the dual-class voting structure,” said David Webb, founder of governance watchdog Webb-site.com and a former director of the exchange.