Everyone should now be very familiar with Alibaba’s IPO. The Chinese firm wants to adopt a special shareholding structure that will allow its partners to nominate the majority of the board and allow founder Jack Ma to retain control of the company even after the share dilution that comes with a public offering.
But Hong Kong, Alibaba’s preferred listing destination, has made it clear that it does not permit such a special structure as it would have gone against the city’s “one share, one vote” principle.
So it should not be surprising that Alibaba is heading instead to the US, where both Nasdaq and the New York Stock Exchange will welcome its unique shareholding structure, which comes attached to a mouthwatering $20bn IPO.
But could one of the capital markets’ most publicised scraps really end with such a whimper? The answer is surely no. This looks more like an elaborate plan by Alibaba to force Hong Kong to make its move sooner rather later.
Coaxing HK to act
Alibaba has proven over the past few months that it is very well-versed in the art of using the media to get what it wants. Last September, the company’s vice chairman Joe Tsai lambasted the Hong Kong Stock Exchange for being too rigid to accommodate Alibaba’s unique shareholding structure.
That worked to great effect. The HKEx subsequently announced it was planning to review its listing requirements, although it did not explicitly say it was going to rewrite its rulebook for the sake of Alibaba. Not that that matters. The timing of the announcement made the rationale behind the move blatantly obvious.
But while it may have looked like Alibaba had got the upper hand in the tussle with Hong Kong, the city’s regulators are yet come out with a timetable for any such review. That put Jack Ma and his buddies in a difficult position. With sentiment surrounding China tech at an all time high, it is hard for the IPO to be put on hold for long. A listing now, before that bubble bursts, makes a lot of financial sense — even though Alibaba has no urgent need for cash.
It takes months for all the relevant accounting work to be done, not to mention officially mandating banks to lead the transaction — although it has been well reported that Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley will all have a role to play in what could be the world’s largest IPO since AIA’s HK$159bn ($20.5bn) transaction in October 2010.
By the time all the preparation work is done, Hong Kong may well have finished its public review. Alibaba’s closing line in Sunday’s statement that it respects "the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong” certainly does not read like it has completely given up on the city just yet.
For its part, the HKEx said on Monday that it would continue to review its shareholding structures, thus leaving the door open for Alibaba to reconsider Hong Kong. Now all the exchange needs is to find a nice excuse to actually start the consultation — without making it too obvious that they are giving in to Jack and co.