Alibaba’s record-breaking listing on the Stock Exchange of Hong Kong is sending ripples across the e-commerce sector.
Alibaba’s secondary listing started with a bang when the e-commerce giant’s stock jumped 7% on the first day of trading on the Stock Exchange of Hong Kong (HKEX).
Alibaba will raise at least HK$88 billion (US$11.3 billion) from its listing in Hong Kong, smashing the record for a cross-border secondary share listing. The e-commerce giant announced a share price of HK$176 (US$22.48), offering investors a 3% discount on its New York closing price.
The biggest fundraising event of the year so far has not been without controversy. Initially intending to float in Hong Kong as an IPO in 2014, Alibaba was forced to move the initial listing to New York as the company’s dual-class governance structure was not permitted on the local exchange.
Why Hong Kong and why now?
Alibaba has long expressed an interest in listing in Hong Kong. The firm’s chairman and chief executive Daniel Zhang lamented, “when Alibaba Group went public in 2014, we missed out on Hong Kong with regret.”
The loss of Alibaba in 2014 led to the HKEX adding dual-class shares, allowing the e-commerce behemoth to complete its secondary listing on the bourse.
The firm’s Hong Kong listing brings Alibaba home, making its shares more accessible to Chinese investors. China’s tight capital controls exclude investors from buying US stocks without an offshore account. However, Chinese investors can buy shares in companies in Hong Kong through the “Stock Connect” channels.
The deal was initially planned for August. However, during a board meeting, it was decided to postpone the listing until November 26, following political unrest in the city. The decision to press ahead with the listing in spite of weeks of heavy unrest sends a message of confidence in Hong Kong’s financial future.
The Hong Kong listing also mitigates Alibaba’s risks in New York. As a result of US President Donald Trump’s protectionism, White House officials and members of Congress in the US have examined proposals that would force Chinese companies out of the US exchanges. A secondary listing in Hong Kong will act as an insurance policy for Alibaba.
The company could have returned to mainland China; however, the Chinese markets cannot compete with Hong Kong’s share sales. The HKEX is no stranger to mammoth IPOs. In 2010, it listed the Agricultural Bank of China in a US$22 billion deal. By comparison, the largest IPO in mainland China in the last decade was the US$7.3 billion listing of China State Construction Engineering Corp.
The listing will unlock more capital for use in streamlining efforts
The listing is set to push Alibaba’s valuation up. The brand already enjoys universal recognition in China, which is prompting significant interest from retail investors. It already has the heaviest oversubscription rate for any share sale in Hong Kong in more than four years. This interest will have an impact on valuations.
Additionally, the company has alluded to intentions to channel the proceeds of the listing into artificial intelligence projects (AI). The application of this substantial financial windfall to technological development projects could allow Alibaba to streamline its processes, allowing it to better compete on the international market.
For those looking to create an online store, the streamlining of Alibaba’s delivery process and through predictive AI models will be an enticing prospect.
The cash injection could also be used in Alibaba’s fight for supremacy in the food delivery and travel sectors. The company has been trying to unseat Meituan as the dominant industry player and could use the funds for acquisitions to strengthen its offerings.
If the funds are used wisely, the listing could become a pivotal moment for Alibaba and its investors. The windfall could provide a thrust to cloud and AI development efforts, which would benefit investors, the regional e-commerce markets, and the platform’s vendors down the road.