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Alibaba puts its faith in Hong Kong with mammoth secondary listing

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Via Financial Times

Alibaba has given protest-racked Hong Kong a vote of confidence as it kicked off the world’s biggest capital raising of the year with an announcement that it would sell 500m shares to investors in a secondary offering.

Daniel Zhang, Alibaba’s chief executive, said on Friday that “during this time of ongoing change, we continue to believe that the future of Hong Kong remains bright”, calling the city “one of the world’s most important finance centres”.

The comments come as the government said the city would fall into its first annual recession since the global financial crisis in 2009.

The Chinese ecommerce company has begun the process of selling shares to investors, with one person familiar with the matter indicating that the books have already been covered. Of those shares, 12.5m are being offered to Hong Kong’s retail investors and will be priced at a maximum of HK$188 ($24), Alibaba said on Friday.

Pricing of the much larger institutional portion is set to be confirmed on November 20, with the shares listing in Hong Kong on November 26 under the ticker 9988. The numbers are auspicious in Chinese culture.

Alibaba said this week that the secondary listing could raise as much as $13.4bn if investment bankers execute an option to sell an additional 15 per cent of shares to investors, known as a green shoe.

Rmb35.5bn


Alibaba’s capital expenditure in 2019 fiscal year

The sale tops the $8bn raised by ride-hailing company Uber in New York in May and provides a vote of confidence for Hong Kong’s status as a finance hub.

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“We hope we can contribute, in our small way, and participate in the future of Hong Kong,” added Mr Zhang, who took over from Jack Ma this year when the Alibaba founder retired.

The group listed on the New York Stock Exchange five years ago and Mr Zhang said the decision not to float in Hong Kong at the time was made “with regret”. He pointed to a number of reforms made to Hong Kong exchange rules since then, which include allowing some dual-class shares.

“Returning to Hong Kong counts as coming back to its homeland,” said Wang Qingrui, an independent technology analyst, of Alibaba’s move to list shares in Hong Kong. “Most of its thriving business is in China.”

Chinese businesses have been caught in the crossfire of the US-China trade war, with Washington at one point weighing a ban on listings of Chinese companies in New York.

Alibaba’s share prospectus makes clear that it is no longer merely the high-margin ecommerce platform that listed in the US five years ago, with management pushing into several other business ventures.

Capital expenditures ballooned from Rmb4.8bn in 2014 to Rmb35.5bn ($5bn) in its 2019 fiscal year, with analysts attributing a bulk of that to investments in cloud computing.

Alibaba’s profit margin shrank from 44 per cent to 23 per cent over the same period.

The company said it will use proceeds from the fundraising to invest in businesses such as Ele.me, its low-margin food delivery arm, and online booking platform Fliggy.

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The lead sponsors on the Alibaba deal are Credit Suisse and Chinese state-owned investment bank CICC.

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