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File: A logo of Alibaba Group is seen at an exhibition during the World Intelligence Congress in Tianjin, China May 16, 2019. [Photo: Reuters / Jason Lee]
Hong Kong is getting a second chance to land the record-breaking deal that got away.
Five years after Alibaba Group Holding Ltd. spurned the city’s stock exchange for a $25 billion initial public offering in New York, the Chinese e-commerce giant is said to be mulling a second listing in Hong Kong that would raise $20 billion from investors.
The deal would mark a major victory for the Asian financial hub, which rewrote its stock-market rules after failing to attract Alibaba in 2014. The city is engaged in an increasingly crowded battle for technology listings as exchanges from Shanghai to Singapore ease their rules to attract fast-growing companies with dual-share classes and, in some cases, unproven business models.
Hong Kong’s move to allow dual-class shares has already had an impact, helping the city lure two of last year’s hottest tech IPOs. Xiaomi Corp. and Meituan Dianping, the third- and seventh-largest debut offerings worldwide in 2018, both went public in Hong Kong to much fanfare, though their shares have since tumbled.
Alibaba, which has a market value of about $400 billion, has always been the biggest prize. Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., has said repeatedly in recent years that he wanted the company to list in the city. It was under Li’s watch that Alibaba opted for New York, which allows dual-class structures.
HKEX shares rose as much as 3.5% Tuesday, outperforming the benchmark Hang Seng Index’s 0.7% gain.
One development that could help Hong Kong is the fizzling of a mainland initiative to introduce so-called Chinese depositary receipts, which were meant to lure tech titans like Alibaba to Shanghai. The city is also home to a forthcoming new technology board, but that venue is mainly targeted at smaller homegrown companies.
Pursuing a Hong Kong listing could be a deft political move for Alibaba founder Jack Ma, amid an increasingly tense relationship between the U.S. and China. With the CDR route closed — at least for now — having Alibaba’s shares traded in Hong Kong may be the next best option. Starting in July, investors in China will be able to buy Hong Kong-listed companies with dual-class share structures via exchange links between the two markets.
Efforts to lure Alibaba went all the way to the top of Hong Kong’s government, with Chief Executive Carrie Lam exhorting Ma to consider a listing in the city.
An Alibaba listing would be a catalyst for further tech companies coming to Hong Kong, Morgan Stanley analyst Anil Agarwal wrote in a note on Tuesday. It would also boost overall trading as investors prefer technology stocks to old economy firms, while raising earnings per share assumptions for HKEX, Agarwal said.
Hong Kong’s adoption of structures that give founders disproportionate voting control came after years of debate, spurred in large part by the loss of Alibaba. Under new rules for secondary listings introduced last year, the company can apply for an exemption to standard restrictions in Hong Kong that bar governance models allowing certain key executives to nominate the board.
Li, a vocal proponent of the rule changes, has eased other restrictions to encourage companies in industries like biotech to go public without proven track records.
The exchange is also exploring how dual-class share rules can be expanded so companies can hold stock with extra voting power. Under the current regime, which started in 2018, such shares can only be held by company directors, and the extra voting rights expire when the holders leave the firm.
By Philip Lagerkranser and Benjamin RobertsonSource: Bloomberg