Equity issue

IFR Asia Awards 2014
3 min read
Fiona Lau

The US$25bn New York Stock Exchange listing of Alibaba Group has transformed the Chinese e-commerce giant into one of the world’s best-known – and most valuable – companies, but its significance goes far beyond that.

The biggest IPO in history lifted valuations across the emerging Chinese technology sector. It prompted a review of listing rules in Hong Kong, Also, it showed just what is possible with the right approach to the capital markets.

Alibaba’s performance since listing – it rose 38% on day one and ended IFR’s review period up 69% – has made the listing look like a formality, but it could have been very different.

The company had initially planned to list in Hong Kong, but its partnership structure fell afoul of local listing rules in allowing a minority to control board appointments. Once it became clear that a change to the rules would take months, if not years, Alibaba switched its focus to the US.

The company, together with independent adviser Rothschild, divided equally among six joint bookrunners various duties, such as negotiating with selling shareholders, prospectus drafting and valuation. Each bank handled a separate leg of a nine-day, two-team roadshow that took in 10 cities and reached over 2,000 investors.

Only the biggest potential investors received individual slots, and the syndicate’s predictions were justified with a 100% hit rate from one-on-one meetings. More than 70 investors placed orders of over US$1bn, and at least one fund signed up for as much as US$4bn.

Alibaba offered 320.1m American depositary shares at US$60–$66 each, representing a forecast 2015 price-to-earnings ratio of about 25x at the top of the range and a discount to a 32x multiple for Hong Kong-listed Tencent. The attractive valuation helped pull in orders totalling US$275bn.

The overwhelming demand allowed the company to raise the price range to US$66–$68 three days prior to pricing, before doing so at the top. Bankers had told Alibaba they could price a successful deal slightly above US$70, but the company chose to go for a positive secondary market showing.

With that in mind, each major allocation was discussed between the arranging banks and Alibaba’s management in an effort to put as much stock in long-term hands as possible. The tactics clearly worked.

Shares soared 38% to close at US$93.89 on their trading debut on September 19, at which point the greenshoe option was quickly exercised to take the IPO to a record-breaking US$25bn.

Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and Citigroup were joint bookrunners.

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