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November 21, 2019

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Alibaba raises US$13b to give a boost to HK markets

Chinese e-commerce giant Alibaba Group raised up to US$12.9 billion in a landmark listing in Hong Kong, the largest share sale in the city in nine years and a world record for a cross-border secondary share sale.

Asia’s biggest company has called the listing a multi-billion-dollar vote of confidence in the city’s markets.

Alibaba said in a statement it had priced the shares at HK$176 (US$22.49) each, a discount of 2.9 percent to its New York closing price.

The price means Alibaba will raise at least HK$88 billion (US$11.3 billion) — a symbolic total because the number 8 is associated with prosperity and good fortune in Chinese culture.

The total raised from the deal could eventually reach US$12.9 billion if a so-called “greenshoe” over-allotment option were exercised.

The company’s share code, 9988, is a homonym in Chinese for “eternal prosperity.”

Alibaba shares closed in New York on Tuesday at US$185.25. One of Alibaba’s New York-listed American Depositary Shares is worth eight of its Hong Kong shares.

While the discount to Alibaba’s last close was set at 2.9 percent, analysts noted the price represented a 3.7 percent discount to the Alibaba’s share price on November 12 — the day before the deal was launched.

“I was expecting it to be done at around 4-5 percent so this is about right,” said Sumeet Singh, head of research at Aequitas and who publishes on research website SmartKarma.

“The deal represents just about 4.4 days of three-month average daily value traded and hence, relatively it’s not a big deal for a stock of Alibaba’s size.”

The listing would still be Hong Kong’s largest initial public offering since insurance giant AIA raised US$20.5 billion in 2010.

Alibaba’s deal comes amid a late-year rush of share sales, with Saudi Arabia’s state oil giant Aramco revving up to price an initial public offering so large it threatens to eclipse Alibaba’s own record US$25 billion float in 2014.

A deal at the top of Aramco’s price range would raise US$25.6 billion and value the company at US$1.7 trillion — short of the US$2 trillion it had originally sought.

Hong Kong’s army of small investors have welcomed the Alibaba deal, subscribing for 40 times the shares they were originally allotted, according to two sources with direct knowledge of the deal.

That represents the heaviest oversubscription rate for any multi-billion dollar share sale in Hong Kong in more than four years, according to Dealogic data.

Alibaba declined to comment on retail subscriptions.

Retail investors will now take 10 percent of the deal, up from the 2.5 percent they were originally allotted. Hong Kong operates a “clawback” system where heavy oversubscription from small investors can result in them getting a greater share.

The numbers imply retail investors collectively put up about US$11 billion in the hope of getting shares in the Chinese e-commerce champion.


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