Hong Kong's listing hub status under growing threat after loss of Alibaba IPO deal

Time to review the IPO regime as the city struggles to win prominent deals

PUBLISHED : Wednesday, 19 March, 2014, 1:25am
UPDATED : Wednesday, 19 March, 2014, 5:21am

Alibaba's decision to list in New York has dealt a blow to the Hong Kong stock exchange as the highly anticipated listing of China's e-commerce giant is critical for Asia's vibrant capitalist hub to reclaim the global crown for initial public offerings.

"It is a genuine loss for Hong Kong after Alibaba picked the US market to host its long-awaited [listing], which could be the swing factor for global bourses to attain the status of the world's largest listing hub for the year," said Ringo Choi, Asia-Pacific IPO leader at EY, a professional services firm. "With an expected sizeable share sale, Alibaba's listing can easily be a game changer for Hong Kong, where fast-growing technology firms remain a minority group in the market."

Alibaba is expected to raise US$15 billion in New York in the highest-profile listing since Facebook's US$16 billion flotation in 2012.

The capital raised in Hong Kong's listing market rose 88 per cent year on year to HK$169 billion last year, making it one of the top three listing hubs globally. But the city has struggled to win prominent deals, partly due to a slowdown in listings of international companies.

Joseph Lee, a lawyer at Cadwalader, Wickersham & Taft, said Hong Kong still could not get rid of its image as the "listing venue" for mainland-based companies. In one notable example, the Glazer family, owner of Manchester United, had once considered listing the English football club in Hong Kong or Singapore in 2011 before it picked New York as it insisted on adopting a dual-class structure to retain control.

Market participants agreed that it was time for Hong Kong to review its listing regime but it needed to strike a balance with good corporate governance and investor protection.

A fund manager with a British fund house said the city should defend the "one share, one vote" system since the overall corporate governance in most Asian countries remained largely behind international standards.

Bankers said it was natural for Alibaba to list in the United States since the infrastructure, valuations and liquidity there gave it a leg up on Hong Kong, but they argued that the mainland internet giant might still consider a secondary listing in the city.

A total of US$3.8 billion was raised in the US equity markets by mainland technology firms since 2013, compared with US$2.7 billion in Hong Kong, according to Dealogic.

Choi said: "Theoretically, it is still possible for Alibaba to list on the Hong Kong stock exchange since the firm has not filed any official document to the US regulators, or the firm may choose to do a secondary listing in Hong Kong if the rules permit."

Lee concurred, saying there was no absolute guarantee that Alibaba would not seek a secondary listing since it had just started working on the US application.

The capital market is getting more sophisticated as well-established companies are offered to list their shares in different jurisdictions.

Hong Kong-listed Kingsoft, a mainland software firm, is looking to raise about US$300 million through a spin-off of its security software business in the US. The company is also proposing a dual-class structure that would allow it to retain control after the offering.