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Alibaba opts for IPO in US
Publication Date : 17-03-2014
Internet giant Alibaba Group's decision to seek a listing in the United States will help rekindle global investors' confidence in Chinese companies, experts said.
China's top e-commerce company confirmed on Sunday that it would start the long-anticipated initial public offering procedure.
The proposed IPO marks the latest wave of Chinese companies flocking to the US, drawn by surging valuations for tech startups and optimism toward Chinese stocks, said Hong Bo, founder of IT consultancy company IT5.
Li Zhi, principal analyst of Beijing-based Analysys International, said: "It is unlikely that Alibaba will experience short selling, since people are astounded by its meteoric growth and have confidence in the Chinese economy."
Fewer Chinese companies have listed in the US since 2011 amid accounting scandals and poor market sentiment. Eight Chinese companies listed in the US last year and only two in 2012, research company zero2ipo said in a report.
David Ethridge, senior vice-president and head of capital markets at NYSE Euronext Inc, said earlier this year that 15 to 20 Chinese companies, most of them tech companies, are expected to list at the exchange.
Alibaba said an IPO in the US would "make us a more global company and enhance the company's transparency, as well as allow the company to continue to pursue our long-term vision and ideals".
Should circumstances permit, Alibaba will extend its public status in the domestic capital market to share its growth with the people of China, the statement said.
The decision to seek an IPO in New York has put an end to rumors about its choice of venue, after the Internet behemoth wrapped up major buyouts to stay agile against cutthroat competition in the mobile Internet age.
The company had yet to decide a timetable, the underwriter, or the amount of money it hopes to raise through a listing, Alibaba spokesman Yang Lei said.
Alibaba failed to persuade Hong Kong regulators to accept its governance structure as it sought a listing on the Hong Kong Stock Exchange.
Alibaba's special request to keep a unique shareholder structure, allowing a group of top managers and founders to nominate and control the company's board, violated the exchange's principle of "one share, one vote".
Alibaba's founding members own about 13 per cent of the company, while Japan's Softbank controls 37 per cent and Yahoo, from the US, 24 per cent.
The proposed US listing is the most anticipated IPO since social networking site Facebook raised $16 billion in 2012. Analysts polled by Reuters have put Alibaba's market value at around $140 billion and the value of the IPO at $15 billion.
The move came just two days after micro-blogging company Sina Weibo filed to raise $500 million via a US IPO. Alibaba holds 18 per cent of Sina Weibo's shares.
Ablibaba's announcement of an IPO plan suggested it has fulfilled specific requirements of either the New York Stock Exchange or Nasdaq, Li from Analysys International said.
"The dual-class stock structures, allowed by some US exchanges, can enable insiders to hold the controlling power even after a company becomes public. Companies of such structure issued shares to founders and prioritised investors that have multiple votes," she said.
But adjustments should still be made accordingly if Alibaba wishes to float its shares, Hong said.
"In a typical dual-class structure, the voting weight is subject to changes of its share-holding percentage. However in Alibaba's case, the 28-person partnership will have the absolute right to nominate a majority of the directors, even if their shares are diluted in the future," he said.
Hangzhou-based Alibaba has facilitated online transactions for multinational chain stores and mom-and-pop vendors. Gross merchandise traded on Alibaba reached $240 billion in 2013, while the figure for its equivalent Amazon was $100 billion, according to Forrester Research.
Its payment spinoff, Alipay, offers online saving funds with higher returns and online-to-offline payment solutions.
But such dominance is being eroded by rival Tencent, which rolled out mobile payment services via chat app WeChat and encroached on many services that overlap with Alibaba's portfolio. Analysts regarded the listing as timely since the current valuation may reach its peak level.
"The going-mobile war has just started and it's too early to tell who has a better chance to edge out, leaving investors the opportunity to put a bet on Alibaba," Li said.
But Li Yi, secretary-general of the China Mobile Internet Industry Association, said Alibaba's prospects are not so rosy, as it is short of effective mobile access points.
"It's easy to move from social networking to e-commerce. But the reverse goal, which Alibaba is struggling to do, is hard to achieve," he said.