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Sarbanes-Oxley a deterrent to Nasdaq listing, says founder

Alibaba, the mainland's leading e-commerce company, has chosen a Hong Kong initial public offering later this year rather than selling shares in New York in a deal that could be worth up to US$1 billion, according to sources.

A decision by Alibaba founder Jack Ma to bring to Hong Kong what could be the biggest initial public offering for a mainland internet company contrasts with other leading players in the sector, which have listed or are seeking a listing in the Nasdaq.

Goldman Sachs and Morgan Stanley are arranging the public offering. The two banks and a spokesman at Alibaba declined to comment.

'Jack Ma is a Sarbanes-Oxley hater and doesn't feel it's necessary to do a US listing,' said source.

Sarbanes-Oxley was a piece of US legislation implemented five years ago in the wake of corporate scandals including Enron, Arthur Andersen and WorldCom. It tightened accounting practices for publicly listed companies and holds corporate chiefs more accountable to investors.

Many companies complain that compliance with the law is prohibitively expensive and critics say it has convinced many foreign companies to seek initial public offerings  in jurisdictions such as London or Hong Kong where regulators have a lighter touch. The US securities regulator last year started a series of changes to the more onerous parts of the law.

Technology companies have favoured New York listings because of the higher valuations they can garner there. Even so, that may not be true for Alibaba.

'The investor base will be a bit different because there will be more retail involvement in Hong Kong but I don't think listing in Hong Kong will make that much difference in terms of valuation because it's a concept stock similar to Baidu and there'll be a lot of frenzy and hype,' said a source.

Baidu.com, the most-used internet search engine in the mainland, listed on the Nasdaq in August 2005. Its shares have risen five times above its offer  price and traded at  US$143.07 on Friday.

There are other reasons why Hong Kong, which is Alibaba's official headquarters and a centre for global trading, is a better alternative for Alibaba.

'Analysts based in Hong Kong are more familiar with international trade - imports and exports. The US ones do not understand that,' said an industry insider.

The listing will involve only the group's business-to-business unit which includes a Chinese site that aims to match traders within the domestic market and an English site for traders around the world.

Alibaba derives revenue from users' subscription fees for its valued-added services, Gold member and Trustpass.

Gold members of Alibaba's international sites can have more elaborate online catalogues, while Trustpass holders at its Chinese site can assure trading partners that their identities are real.

Alibaba's revenue last year was about two times  Baidu's, or US$200 million, said a source.

The group recently hired  international trade veteran David Wei, the head of British retailer B&O's China operation, to be president of its business-to-business unit.

Mr Wei has said he plans to introduce more paying services in Alibaba's sites in the next two to three years.

The group's non-profitable divisions, such as online auction site Taobao.com, and the Yahoo China operations, will not be included in the offering.

As liquidity was high in capital markets around the world, the valuation gap between the Hong Kong and US markets was disappearing - making Alibaba's listing in Hong Kong more plausible, said Dick Wei, a China internet analyst at  JP Morgan.

Most of the leading internet companies in the mainland, such as the largest portals Sina and Sohu, and top search engine Baidu,  were listed in Nasdaq as investors there were more familiar with their business models and willing to give a higher valuation, he added.



Alibaba targets HK for US$1b public offering