Equity Issue: Alibaba Group’s US$12.9bn Hong Kong secondary listing

IFR Asia Awards 2020
3 min read
Fiona Lau

Second coming

Alibaba Group’s Hong Kong listing, completed at the back end of 2019, was a defining moment for the global capital markets.

The HK$101.2bn (US$12.9bn) offering brought the Chinese e-commerce giant closer to its customer base and introduced hundreds of thousands of new investors to the stock.

More importantly, it gave Alibaba an alternative funding platform and reduced its dependence on the US equity market, neutralising threats from hawkish US politicians looking to curb the flow of capital to Chinese companies.

Alibaba’s move also transformed the Hong Kong market, proving that it could support a highly liquid, mega-cap technology stock. Nine more US-listed Chinese companies, including JD.com and Netease, copied that move in 2020 to raise a combined US$16bn, and many more are expected in 2021.

Alibaba was the first to take advantage of Hong Kong’s April 2018 reforms allowing Greater China companies that listed in New York or London to float in Hong Kong with their existing voting structure, including weighted voting rights.

The secondary listing was phenomenal in many aspects – it is the city’s largest equity offering since insurance giant AIA’s US$20.5bn IPO in 2010 and the largest ever technology follow-on offering globally.

It also set a template for others. Unlike a typical Hong Kong IPO, Alibaba skipped pre-marketing and went straight to bookbuilding, cutting execution time dramatically.

It also pioneered a fully paperless public offering in Hong Kong, with no printed copies of the IPO prospectus or any application forms – a move that would become more significant after the Covid-19 outbreak months later. Over 210,000 Hong Kong retail investors subscribed for shares online, either directly or through a broker, covering the retail tranche 42 times.

Timing was challenging, amid an escalation in anti-government protests that had rocked confidence in Hong Kong as a financial centre. However, Alibaba managed to price its offering of 500m primary shares or 2.3% of its enlarged share capital at HK$176 per share – a tight discount of 2.9% to the pre-deal New York close and only 3.8% since its first filing.

The underwriters deliberately targeted Asian investors without exposure to Alibaba’s US stock, and allocations were concentrated toward high-quality investors that are natural long-term owners of the Hong Kong line.

The Hong Kong shares jumped 6.6% on their trading debut on November 26 2019 and have remained heavily traded ever since. Turnover in the Hong Kong counter surpassed New York for much of 2020, with Asian investors instrumental in driving the stock to a high of HK$309.40 on October 28.

CICC and Credit Suisse were sponsors, and global coordinators with Citigroup, JP Morgan and Morgan Stanley. The five were also bookrunners with HSBC and ICBC International.

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