Alibaba Group

Alibaba open to IPO concessions

Proposal may not be enough to ease regulators' concerns over e-commerce giant's structure

PUBLISHED : Wednesday, 25 September, 2013, 12:00am
UPDATED : Wednesday, 25 September, 2013, 4:13am

Alibaba Group would cut the number of partners the firm has and bind them to a three-year share sale ban if Hong Kong regulators accept a controversial management structure that is blocking its potential HK$100 billion initial public offering, a source close to the listing authorities told the South China Morning Post.

The proposal had been floated to the stock exchange's listing committee ahead of a regular meeting tomorrow, but no formal listing application had yet been submitted, the source said.

"This is aimed at showing that Alibaba is willing to make concessions," the source said.

Another source close to the Securities and Futures Commission said such a concession was unlikely to be enough to persuade the authorities to accept the Alibaba structure. "Alibaba will still not give up its demand to nominate the majority of board directors, which still gives more power to certain shareholders than others. That is unacceptable to the SFC," the source said.

Share lock-ups for executives are not uncommon in initial public offerings.

Alibaba had no comment, but a source close to the company said talks were continuing and constructive.

The e-commerce giant's planned listing is in limbo over its management's determination to maintain a partnership structure that regulators worry gives top executives more rights than ordinary shareholders.

Sources close to Alibaba insist the firm does not want a dual share structure or a change to rules. Instead, it is seeking an exemption under an existing rule that is part of the Hong Kong listing code.

Alibaba founder and chairman Jack Ma Yun revealed fresh details about the partnership scheme earlier this month that analysts saw as being designed to soothe concerns. The scheme started in 2010 and had elected 28 partners over a three-round selection process following strict eligibility criteria.

Ma and his top executives own about 10 per cent of the company, compared with about 24 per cent owned by United States internet firm Yahoo and about 37 per cent by Japan's SoftBank.

Investment bankers who have met Ma have told him that a New York listing would be his best bet for securing the control he craves.

Both the New York Stock Exchange and its smaller rival, Nasdaq, are lobbying Alibaba to list in the US where a dual-class share structure is allowed.

Financial experts say, however, that Alibaba has missed its window to sell shares in New York this year and it may have only until the end of this month before the same happens in Hong Kong.

Any later and the application would be subject to new rules that come into effect on October 1, obliging firms to allow at least two months between the date of a sponsor's formal appointment and a listing application.

Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia said after the first anniversary ceremony of its joint venture with the two mainland stock exchanges yesterday that the city's listing rules were working well and there was no reason to change them to accommodate dual share structures, in the latest sign that the regulatory stand-off remains unresolved.

When asked about the status of the potential listing of Alibaba, Li reiterated that Hong Kong's listing regime was designed to protect all shareholders equally, underscoring the reservations that the regulators have about the company's structure.