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Alibaba’s IPO is well worth the wait

By Rashmi Kumar
02 Sep 2014

There was plenty of speculation about the timing on Alibaba Group’s IPO even before the e-commerce company officially announced its listing plans. The saga took another turn this week as the launch date was postponed. But with the stakes high for the whole industry, it’s better for Alibaba to take its time and get the deal right.

There can by now be few in the capital markets that are not familiar with Alibaba’s IPO plans. The Chinese firm is looking to sell shares on the New York Stock Exchange in a deal that could raise as much as $20bn. At that size, it will become the biggest listing in the US on record — beating Visa’s 2008 IPO worth $19.65bn, according to Dealogic.

Alibaba’s deal will certainly be larger than life and it has already come with its own share of ups and downs, particularly with regard to timing.

Those close to the IPO first told GlobalCapital Asia that books would probably open at the end of July, with Alibaba’s shares to debut on August 8. Then at the end of August talk was circulating that the company was telling investors it would open books on September 2, just one day after the US’s Labor Day holiday and the end of summer break. The shares were then to start trading in New York on September 16 under the stock code BABA.

But the deal is still to materialise. This week it became clear that there was a delay and that the company was now targeting a launch in the week of September 8, with trading tentatively scheduled for roughly 10 days later. It is understood that Alibaba is still answering some questions from the US Securities and Exchange Commission.

What has raised the hackles of bankers on and off the deal is that other issuers have been forced to put their IPO plans on hold until Alibaba completes its jumbo deal. None of them are aiming for anywhere near what the tech company is looking to raise, but they still don’t want to compete with a transaction that is on the radar of pretty much all investors and will suck up a lot of attention and liquidity.

So while the delay to Alibaba may be an inconvenience to those waiting in the wings, it is vital for the rest of the market that the deal — when it does appear — goes without a hitch.

Domino effect

If Alibaba is a blowout with investors, it will open up the window for many others to follow suit — even some of the more tentative issuers. And it will not just be tech-related companies that can take advantage of the improved sentiment. Bankers reckon Alibaba’s success could have a domino effect on issuers in other sectors, from the region and beyond.

On the flipside, a poor showing from investors and a lacklustre secondary market performance will spoil the party for everybody else. For example, when King Digital Entertainment, the maker of the popular game Candy Crush, crashed by 16% on its March 26 debut on the NYSE, sentiment waned towards anything tech related. And that IPO was only $500m.

When China’s Twitter equivalent Weibo came to the market a month later, it was forced to cut its IPO size by almost 20% before pricing the deal at the bottom of guidance.

There are more such examples of deals that struggled to close, owing to the poor after market performance of one big name. But the fact that Alibaba is taking its time with its IPO — and has only released information in bits and pieces over the past months — means it is leaving no room for any error. 

After all, if it all goes wrong, there’s no genie in a lamp to come to the rescue. 

By Rashmi Kumar
02 Sep 2014