The Chinese e-commerce giant
Alibaba Group Holding
(ticker: BABA) has been trading on the New York Stock Exchange since it raised $ 25 billion in its first stock exchange listing in 2014. The price of US equity shares has risen 173% from $ 68 on the stock exchange to $ 185.49 as of Friday's close.
Now the company wants to offer another 500 million new ordinary shares in a listing through the Hong Kong Stock Exchange. The offer, which is expected to raise as much as $ 14 billion, will be the largest so far in 2019.
What does the Hong Kong listing mean for US investors who already own Alibaba & # 39; s ADS, or want to buy the stock? Here are a few things to know.
It will be dilution, but it should not be worrying.
Each Alibaba ADS represents eight ordinary shares that can be freely exchanged with the Hong Kong listed shares. It is likely to be a dilution of around 2.8%, according to a person familiar with the matter, which could reduce the value of existing investors' shares and their proportionate ownership of the company.
However, with potential high demand from new investors in Asia, the price of existing shares may also be lifted. The second listing will also allow global investors to trade almost around the clock. Right now, traders have to wait 17 hours for the US market to open.
The Hong Kong listing is not yet priced. We know the price on Tuesday.
Unlike in the United States, Hong Kong regulations allow retail investors to directly buy shares in a public offering by making a down payment. If demand exceeds the amount of available stock, part of the money is returned to investors. The whole process may take a few days.
Alibaba said it plans to officially set the Hong Kong offer price on Tuesday, after the US market closes. The closing price of Alibaba ADS that day, divided in eight, will be the offer price of the new ordinary shares, although the amount Hong Kong retail investors will pay is limited to $ 188 Hong Kong, or $ 24. There are no price caps for institutional investors, who are expected to take 97.5% of the new shares.
The new shares are expected to start trading on November 26 under ticker 9988, the company said.
The NYSE should remain the main stock exchange for Alibaba shares even after the Hong Kong listing.
A person familiar with the matter told Barron's that there would probably not be a large amount of trading between existing ADSs and the Hong Kong listed common stock, because the US market is still have better liquidity and access to global investors. Doing such trades can also cause tax complications.
The listing is not a response to concern that the United States will restrict capital investment in Chinese companies.
In the midst of the escalation of the US-China trade war earlier this year, investors have been concerned about the disconnection of the world's two largest economies – not just for technology, but also in terms of capital. There have been reports of the US potentially restricting public pensions from investing in China and delisting Chinese companies traded on US exchanges.
Although Alibaba's listing in Hong Kong could somehow mitigate the risk, it was not the main reason the company went ahead, according to a person familiar with the matter. These events are all relatively recent, the person said, and Alibaba has been thinking about listing in Hong Kong for many years.
When the e-commerce giant went public in 2014, it wanted to list in Hong Kong. But the local exchange did not allow Alibaba's capital in two classes at that time. The Hong Kong Stock Exchange loosened its rules last year, and many Chinese companies have since offered shares on the stock exchange. Alibaba said in a statement on Thursday that the company wants to use a broader investor base and capital pool across Asia.
A list of Hong Kong will bring Alibaba closer to home, and that's a good thing.
The Hong Kong listed shares will not only be available to global institutional investors, but also to the city's local retail investors. The Stock Connect program, which links the Hong Kong, Shanghai and Shenzhen stock exchanges, also enables China's mainland investors to trade securities in Hong Kong, and vice versa.
Alibaba plans to apply for eligibility in the Stock Connect channel after listing in Hong Kong. This will make it easier for Chinese citizens – who are mostly Alibaba customers and have a better understanding of the business – to invest and participate in the company's growth.
Alibaba is not so concerned about the turmoil in Hong Kong.
Hong Kong's protests against the government have lasted for months and fallen into widespread violence. The chaos intensified this week as protesters marched in the city's business district and set up barricades on the college campuses. One man was shot by police and another was set on fire by protesters. The economy has fallen in its first recession since the global financial crisis in 2009.
Alibaba's entry constitutes a vote of confidence in the city. "During this time of ongoing change, we continue to believe that the future of Hong Kong is still bright," CEO and Chairman Daniel Zhang wrote in a letter included in the company's prospectus. Zhang called Hong Kong "one of the world's most important financial centers" and did not mention the turmoil.
Hong Kong's stock market is still open. As of the close of trading on Friday
The Hang Seng Index
was up almost 2% this year, compared to almost 25% increase in
and an increase of 16% in China
Index. From June to October this year, 66 companies were newly listed on the Hong Kong Stock Exchange, compared to 92 in this span in 2018.
Write to Evie Liu at email@example.com