Hong Kong is getting a second chance to land the record-breaking deal that got away.
Five years after Alibaba Group Holding Ltd (阿里巴巴) spurned the territory’s stock exchange for a US$25 billion initial public offering (IPO) in New York City, the Chinese e-commerce giant is said to be mulling a second listing in Hong Kong that would raise US$20 billion from investors.
The deal would mark a major victory for the territory, which rewrote its stock-market rules after failing to attract Alibaba in 2014.
The territory 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 (小米) and Meituan Dianping (美團點評), the third and seventh-largest debut offerings worldwide last year, both went public in Hong Kong to much fanfare, though their shares have since tumbled.
Alibaba, which has a market value of about US$400 billion, has always been the biggest prize.
Hong Kong Exchanges & Clearing Ltd (HKEX) chief executive Charles Li (李小加) has said repeatedly in recent years that he wanted the company to list in the territory.
It was under Li’s watch that Alibaba opted for New York, which allows dual-class structures.
HKEX shares yesterday rose as much as 3.5 percent, outperforming the benchmark Hang Seng Index’s 0.7 percent gain.
One development that could help Hong Kong is the fizzling of a mainland Chinese initiative to introduce so-called Chinese depositary receipts (CDRs), which were meant to lure tech titans like Alibaba to Shanghai.
The territory 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 (馬雲), amid an increasingly tense relationship between the US 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 (林鄭月娥) exhorting Ma to consider a listing in the territory.
An Alibaba listing would be a catalyst for further tech companies coming to Hong Kong, Morgan Stanley analyst Anil Agarwal wrote in a note yesterday.
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 last year, such shares can only be held by company directors, and the extra voting rights expire when the holders leave the firm.
An Alibaba IPO would likely squeeze liquidity in Hong Kong, pushing up borrowing rates and strengthening the HK dollar.
Liquidity would tighten in the weeks around a listing due to demand for cash from subscribers.
“If it does raise such a huge amount of money in the Hong Kong stock market, then I think the Hibor, especially the front-end liquidity, would tighten around this period,” OCBC Wing Hang Bank Ltd (華橋永亨銀行) economist Carie Li (李若凡) said, using the term for interbank rates in the territory. “It could push up the Hong Kong dollar by quite a significant magnitude, although it won’t last.”
A rise in Hibor affects the cost of everything from mortgages to corporate loans, and can linger after big share sales.
Hong Kong borrowing costs climbed in the lead up to smartphone-maker Xiaomi IPO, with the one-month interbank rate hitting its highest since October 2008. Short-term rates then tumbled amid tepid demand.
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