In accordance to the Bloomberg report issued yesterday, Alibaba Group is considering a re-float on the Hong Kong Stock Exchange (HKEX) in a bid to raise 20 billion US dollars in capital. Currently, the company is trying to discuss the listing process with market financial advisers, and expect to submit a listing application to the HKEX in the second half of 2019.
After the information was posted by Bloomberg, the Chinese news media contacted Alibaba for verification, but the company claimed that “they will not comment on the market hearsays”. Based on Bloomberg announcement, the company’s plan to be listed in Hong Kong remains in its preliminary stage and may change in the future.
On November 2007, one of the Alibaba Business to Business (B2B) subsidiaries had previously been listed on the HKEX, raising a total of 11.6 billion Hong Kong dollars and became the largest financing scale of Chinese Internet companies in Hong Kong at that time. After the listing, the company’s share price grew up to three times of its initial issued price and became the “the king of Hong Kong new issued stocks” of that year.
However, following the 2008 financial crisis, Alibaba B2B’s share price experienced a significant decrease. Moreover, with the expansion of the Consumer to Consumer (C2C) market and the resurgence of the Business to Consumer (B2C) sector caused Alibaba’s B2B business fall in value. Consequently, Alibaba B2B decided to privatize its business in 2012 and withdrew from the HKEX.
In 2013, Alibaba Group hoped to be listed in Hong Kong with a Dual-Class Share Structure. However, the HKEX did not recognize the partnership system and therefore did not accept the structure at that time, Ali’s re-listing plan in Hong Kong eventually failed. Alibaba Group Executive Vice Chairman Chongxin Cai issued an announcement after the unsuccessful plan and claimed that they did not expect Hong Kong regulators to make any changes for Alibaba in the future. Alibaba Group CEO Zhaoyu Lu also said that the HKEX still needed time to accept this new governance structure.
In 2014, Alibaba went public on the New York Stock Exchange, raising a total of 25 billion US dollars to become the world’s largest IPO.
After missing out of Alibaba, the HKEX gradually realized that Dual-Class Share Structure became more popular among emerging enterprises, and would lose more if they did not seek change. Mr Antony Leung, the former Financial Secretary of Hong Kong, noted that it was a major mistake for not allowing Alibaba to be listed in Hong Kong.
HKEX revised its regulation to allow the companies with Dual-Class Share Structure go public on the HK stock market in April 2018. Companies such as Xiaomi, Meituan, Yingke, Haidilao, Baby Tree, etc, were successfully listed on HK after the policy change. In light of this news, investors have reason to believe in Alibaba’s public listing in Hong Kong.
Benefits for listing on HKEX
Alibaba is currently holding around US$28 billion in cash and cash equivalents. If financial companies are excluded, Alibaba would be ranked sixth in terms of cash size among the global companies. Therefore, it appears that the company requires little financing and does not require an additional trading venue unless the trading floor can bring new vitality to the company. According to the Bloomberg reports, the second listing could enable Alibaba to expand its financing channels and improve its stock liquidity. Considering the competition in the Chinese market and Alibaba’s stock repurchase plan from the Softbank Group (the largest shareholder of Alibaba), re-listing on HKEX seems reasonable for Alibaba Group. Moreover, in the context of the growing intense relationship between China and the U.S., considering a re-list in Hong Kong may be a smart political move for the Alibaba group. With the Chinese Depositary Receipt (CDR) strategy out of the book, Alibaba’s stock trading in Hong Kong may be the next best available choice for now.
Xiaojia Li, CEO of the HKEX, have spoken about Alibaba and has stated that when Alibaba believes that the Hong Kong market can solve its problems, it is highly possible that they will return. The Hong Kong government appeared to favour Alibaba public listing on the HKEX with the Chief Executive Carrie Lam advising Jack Ma to consider the business’s re-float in Hong Kong. Based on the report by the Morgan Stanley analyst Anil Agarwal, Alibaba’s listing will be a catalyst for further technology companies that come to Hong Kong. This would also drive up the market trading size as the investors prefer technology stocks rather than the ‘old economy’ companies. HKEX market started to demonstrate a positive reaction to this news that shares had increased by about 2.2% on Tuesday and the benchmark Hang Seng Index grew by about 0.4%.
By Louis Cai
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