Alibaba hits a speed bump in rush to list; IPO pushed back to September

Chinese e-commerce giant pushes back offering to September as it seeks more time for regulatory approvals slowed down by acquisition spree

PUBLISHED : Saturday, 19 July, 2014, 1:58am
UPDATED : Saturday, 19 July, 2014, 1:58am

Alibaba Group Holding will wait until September to conduct its United States initial public offering, a person with knowledge of the matter said, as it seeks regulatory approval of its prospectus.

The Chinese e-commerce giant had been targeting a debut early next month that would have had its executives on the road to meet investors soon, people familiar with the situation said this week.

The company is now seeking to avoid rushing the deal as it continues talks with the Securities and Exchange Commission.

Alibaba had been on an acquisition spree, adding stakes in logistics, media and retail companies, that might be slowing down the approval process, said Max Wolff, an independent analyst.

Regulators have also had to consider Alibaba's unique governance model and that - like other Chinese internet companies - it relies on a legal structure that could potentially be invalidated.

They have been on an acquisition superstreak [that is] less positive for speed

"It was probably doable to get it out in August, but ambitious," Wolff said. "They have been on an acquisition superstreak. That's much less positive for speed."

The company may price its offer about 22 per cent below analyst valuations, according to a survey of estimates, a move that could avoid repeating the listing flop of Facebook.

The Hangzhou-based firm may set the offering value at US$154 billion, according to the average estimate of analysts, who see the company's post-listing valuation at US$198 billion.

Alibaba was expecting to receive another round of comments from the SEC by July 25, and planned to proceed with the roadshow shortly thereafter, a person said this week.

The delay did not reflect any problems with the SEC's review process, the person familiar with the latest developments said on Thursday.

The mostly minor revisions made to Alibaba's offering document so far are a sign that the SEC - the principal regulatory hurdle Alibaba must clear before raising perhaps US$20 billion - will approve the sale. Alibaba has amended its prospectus three times since it was first filed in May.

Spokesmen for Alibaba declined to comment.

Alibaba's offering may be the biggest in US history when it lists on the New York Stock Exchange as the company attracts investors keen to tap into the surging Chinese economy and the world's biggest pool of internet users.

The most recent amendment gave a partnership of 27 executives that governs Alibaba a stronger grip over the company, allowing it in certain cases to appoint directors without seeking shareholder approval.

The partnership, a governance structure that kept Alibaba from pursuing a listing in Hong Kong, has the exclusive right to nominate a majority of Alibaba's board.

Like many Chinese companies, Alibaba uses a legal structure known as a variable interest entity to get around Chinese government restrictions on foreign investment in certain industries, including internet companies.

While Alibaba receives less than 12 per cent of its revenue from the structures, US investors could be affected if Chinese courts fail to uphold the validity of the VIE contracts, the filing shows.

Alibaba's goal had been to get a deal done before a summer lull that begins next month, when many fund managers leave for holidays and trading volumes in the US slump.

To complete the deal in that short timeframe, Alibaba had discussed the option of dividing its management team up in order to conduct simultaneous investor meetings across the globe, two people said. That was one of several options on the table, they said.

Alibaba has been in the spotlight for months, as investors see it as a proxy for the rise of web commerce in China. Estimates of Alibaba's valuation suggest it could raise more than US$20 billion, which would make it the largest such offering in the US. The share sale will give US internet giant Yahoo - which owns a 23 per cent stake of Alibaba - the ability to exit part of its investment.

Strategists are forecasting that gains in US markets are done for the year. US stocks slid from record highs last week, sending the Standard & Poor's 500 Index to the biggest drop since April, amid concern over financial stress in Europe and the timing of higher US interest rates.