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A monitor displays Alibaba Group Holding’s signage on the floor of the New York Stock Exchange (NYSE) in New York on Tuesday, January 2, 2018. Photo: Bloomberg

Alibaba seeks one-to-eight stock split as the first step toward a secondary listing that may raise as much as US$20 billion

  • Alibaba will split its ordinary shares in a one-to-eight subdivision
  • One ordinary share with a par value of US$0.000025 will be subdivided into eight ordinary shares with a par value of US$0.000003125, increasing the number of ordinary shares from 4 billion to 32 billion
Alibaba
Alibaba Group Holding, operator of the world’s largest e-commerce platform, has applied to split its ordinary shares, part of a move to increase the flexibility of its capital raising activities, including the issuing of new shares.
The New York-listed Chinese e-commerce giant is proposing to split each of its ordinary shares into eight, according to a statement on its website. Under the changes, one American Depositary Share (ADS), which currently represents one ordinary share, will represent eight ordinary shares. Voting rights of shareholders will remain the same.

“The board of directors is proposing the share subdivision to increase the flexibility for the company in future capital market activities,” said the company, which owns South China Morning Post, in its statement. “Among other reasons, the one-to-eight share subdivision will increase the number of shares available for issuance at a lower per-share price, and the board of directors believes that this will increase flexibility in the company’s capital raising activities, including the issuance of new shares.”

The move comes after Bloomberg reported that Alibaba has appointed China International Capital Corporation and Credit Suisse Group to lead a secondary listing in Hong Kong, which could raise as much as US$20 billion, according to people familiar with the matter. The Hangzhou-based company has reiterated that it does not comment on market rumours, while the Hong Kong Exchanges & Clearing Limited (HKEX), the operator of Asia’s second-largest capital market, declined to comment.

Alibaba said to pick CICC, Credit Suisse to lead Hong Kong share sale

As of June 7, Alibaba had 4 billion ordinary shares valued at US$0.000025 each, forming a US$100,000 share capital. The share split would raise the number of shares to 32 billion at a par value of US$0.000003125 each. The company’s shareholders will vote for the changes at the annual general meeting on July 15 in Hong Kong. If approved, the change has a year to come into effect.

The company raised US$25 billion in its initial public offering in New York in 2014, marking the world’s largest flotation in history. Despite wanting to file in Hong Kong, the e-commerce giant turned to the US after growing frustrated at the city’s listing rules.
The HKEX had insisted Alibaba’s dual-class share structure meant ordinary investors were at a disadvantage, as founders or key management hold larger voting rights.

In a blog post at the time, vice-chairman Joe Tsai wrote that “the question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by”.

To hit the message home, Hong Kong was surpassed in 2017 by New York, Shanghai and Shenzhen as the number one market for IPOs, as technology start-ups and so-called “new economy” stocks like Chinese video-streaming site iQiyi Inc sought to raise capital outside China, and Hong Kong.

Jolted by the desertion, the HKEX and Hong Kong’s Securities & Futures Commission (SFC) pushed through a reform of the city’s listing rules to allow dual-class share companies to list in the city, in an attempt to draw tech companies, particularly those from China, to the city’s markets.

The change attracted the likes of smartphone maker Xiaomi, which raised US$5.4 billion last July, and food delivery service app Meituan Dianping, which raised US$4.2 billion in September, and made Hong Kong the world’s top IPO market in 2018.

The listing reforms, the biggest overhaul of the city’s financial regulations in three decades, was part of Hong Kong’s programme to revitalise its capital market to keep its edge as the world’s favourite place for raising capital. Hong Kong was the number one destination for IPOs in six of the past 10 years, surpassing New York and Shanghai.

The exchange has unveiled a confidential application process for companies that are already listed in New York or London to raise funds on the local bourse. Unlike IPO applications that are publicly disclosed, the confidential process will be kept under wraps to shield applicants’ existing shares from volatility and speculation, according to the exchange’s listing rules. The duration of the confidentiality works on a case-by-case basis depending on needs, according to financial officials familiar with the matter.
Still, mainland China’s stock markets are not sitting idly by. The Shanghai Stock Exchange last week officially launched its technology innovation board, a Nasdaq-style market called The Star Market, to help local technology start-ups raise capital.

So far, 120 companies have applied to list on the board. The Shanghai exchange has approved six firms to float shares on the board, including Shenzhen ChipScreen Biosciences, Anji Microelectronics (Shanghai) and Suzhou Tztek Technology. Some of the companies on the board eventually will be selected to trade on the Hong Kong-Shanghai Stock Connect, providing access to additional money from investors outside the mainland.

The tech board, which was set up under a November 2018 edict by Chinese President Xi Jinping, is largely being seen as a way for China to become more self-sufficient in core technologies against the backdrop of the US-China trade war, which has escalated into a race to become the global leader in technology.

Alibaba’s shares fell 1.4 per cent to US$158.10 on Friday in New York, valuing the company at US$411.6 billion, making it the largest listed Chinese technology company. Shares of Tencent Holdings, the Chinese games publisher and social network operator, fell 0.3 per cent to HK$329 in Hong Kong trading, giving the Shenzhen-based company a market capitalisation of HK$3.13 trillion (US$400 billion). HKEX shares, which are listed in Hong Kong, closed Monday’s trading 1.3 per cent higher at HK$263.80 after Alibaba’s announcement.

This article appeared in the South China Morning Post print edition as: Alibaba seeks stock split before possible HK listing
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