Analysis | Alibaba’s Hong Kong secondary listing gives Asia’s Taobao users a chance to own stakes in China’s biggest technology champion
- Some analysts believe Alibaba’s stock remains undervalued despite nearly tripling since its 2014 IPO
- Hong Kong hopes to attract more tech companies like Alibaba with listing rule changes
Five years ago, Alibaba Group Holding chose New York over Hong Kong in what would be the world’s biggest initial public offering ever – worth a whopping US$25 billion.
The company’s stock has nearly tripled from its IPO value in 2014, but the decision to list in the United States has been a mixed bag, as some analysts believe its shares remain undervalued and heightened tensions between Beijing and Washington have raised questions about whether Chinese companies would be restricted from accessing American capital markets in the future.
“When Alibaba Group went public in 2014, we missed out on Hong Kong with regret,” Alibaba’s group executive chairman Daniel Zhang wrote in a letter to staff after the filing of the company’s listing plans. “We always said that if given the chance, we hope to come to Hong Kong. Over the last few years, there have been many encouraging reforms in Hong Kong’s capital market. During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright.”
The secondary listing also helps soften a lingering sting among Hong Kong’s financial officials after Alibaba spurned the city in 2014 over a legacy regulation that barred companies with weighted voting rights, or dual-class shares, from raising capital.
The company, whose businesses range from e-commerce to big data, financial services and cloud computing, among dozens of other divisions, went to New York instead, sparking disappointment and spurring discussions about modernising the city’s listing requirements.
Alibaba’s return to Hong Kong is most welcomed, said Carlson Tong Ka-shing, who was chairman of the Securities and Futures Commission when the company chose New York in 2014.
“The listing of Alibaba in Hong Kong shows the resilience and strength of the Hong Kong capital market, [since] our exchange can successfully support such a major fundraising exercise [despite] the ongoing social unrest,” said Tong in an interview after his retirement last year.
Having a foot in Hong Kong’s capital market is an important part of Alibaba’s commitment to globalisation, Zhang said.
Still, Alibaba’s listing in Hong Kong comes at a sensitive time in US-China relations.
The world’s two biggest economies have been embroiled in a trade war for more than a year, with US President Donald Trump trying to use tariffs to force Beijing to change decades of industrial and trade policy.
The stakes are high, with 156 Chinese companies capitalised at a combined US$1.2 trillion on American bourses at the end of February, according to the US-China Economic and Security Review Commission, a government body that monitors the trade between the two countries. They include China’s dominant internet search operator Baidu, online retailer JD.com, online travel agent Ctrip.com and Alibaba.
Their share prices have fallen amid the rising tensions wrought by the year-long US-China trade war, with Alibaba’s shares falling to a two-year low in early January. Its share price has recovered over the course of 2019, increasingly 33.1 per cent since the beginning of the year. Alibaba shares fell 2.4 per cent to US$182.48 at the end of Wednesday’s trading in New York.
Against this shifting political environment, investor appetite for exposure to Chinese markets still continues to increase, with several index providers, including MSCI, increasing the weighting of Chinese A shares in their emerging market indices this year.
“As China grows as a financial powerhouse that exerts more and more influence for investors globally, as the [country’s] capital account slowly opens up, you will see more capital being been deployed in China,” said James Ashley, head of Goldman Sachs Asset Management’s international market strategy team. “[In the] long term, I think China will become a focal point for more and more investors, not just those who are investing in [emerging markets] more broadly.”
The offering could open the door for additional listings in Hong Kong by mainland Chinese technology companies, which would help expand the Stock Connect cross-border investment channels for mainland Chinese investors to own more Hong Kong-listed stocks, said Laurence Li Lu-jen, chairman of the Financial Services Development Council, a government-appointed body that promotes the financial status of Hong Kong.
“It will add to the case for Hong Kong to play a bigger role as a trading hub for mainlanders to trade the stocks of Chinese companies they are familiar with,’ Li said. “This will help Hong Kong to lobby Beijing to further widen the Stock Connect schemes.”
To be sure, mainland Chinese investors will need to wait for as long as six months to get their hands on Alibaba’s Hong Kong-listed shares.
“[Investors] will need to wait for Beijing’s [financial regulator] to decide when Alibaba can be added to the Stock Connect for mainlanders to trade,” said Clement Chan, managing director of accounting firm BDO.
Chinese smartphone maker Xiaomi and food deliverer Meituan Dianping were included in the Stock Connect in October, more than a year after their respective listings in Hong Kong, after Chinese markets amended their rules to allow Chinese investors to own technology companies with weighted voting right, or dual-class, shares.
Hong Kong’s benchmark Hang Seng Index has risen 2.9 per cent this year, making it the sixth-biggest loser out of the 14 stock markets in Asia-Pacific. HKEX shares, which are traded on the exchange, have risen by 7.8 per cent this year.
The city’s bourse slipped behind the NYSE and Nasdaq this summer in the annual race for global fundraising capital, but the Alibaba listing, if it raises at least US$10 billion, would push the Hong Kong stock exchange back into the lead for global fundraising, according to Refinitiv, the financial data provider.
Seeing the window of opportunity, Alibaba seized the chance to go to market. Its offering would be the largest to come to the market anywhere in the world this year, topping the US$8.1 billion IPO in New York by Uber Technologies in May.
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