Hong Kong Returns to Business as Alibaba Prepares for 2019’s Biggest Global Listing

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Hong Kong IPO oversubscribed 40 times, listing on November 26.  

Hong Kong is getting back to business as Alibaba prepares to issue their initial public offering (IPO) on the local Hang Seng Index.

Alibaba Group Holding will offer investors in its Hong Kong shares a slight discount to its US-listed depository shares, as Asia’s most valuable company prepares to kick off the world’s largest IPO this year. The Hangzhou-based company has priced its secondary stock offering in Hong Kong at HK$176 (US$22.5) each.

A rush for its shares among retail investors is said to have boosted the over subscription rate by 40 times, locking up a record HK$94 billion (US$12.1 billion) for an IPO in Hong Kong this year.

Separately, the Hong Kong Exchanges and Clearing Limited (HKEX), the operator of the bourse, said it would roll out options and futures contracts for the stock when Alibaba makes its trading debut on November 26. The shares can also be available for short-selling.

The offer price works out to about 2.6 percent discount to Alibaba’s November 19 closing price of US$185.25 in New York. It is also about 6.4 percent below the indicative ceiling of HK$188 each for retail investors in Hong Kong. Eight Hong Kong-listed shares are worth the equivalent of one New York-listed share.

Based on the pricing the company will raise as much as HK$101.2 billion (US$13 billion) if the full allocation of 575 million shares is taken up, making it the biggest offering globally so far this year.

The IPO is expected to place Hong Kong back to the top in global IPO capital rankings. The Hong Kong Exchanges and Clearing Exchange rose 2.8 percent yesterday.

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “Many US lawyers, such as the China Law Blog have stated Hong Kong is finished and that surviving the business environment in China is difficult. While the US-China trade war has had an impact, such statements underline a lack of knowledge about how to do business in China, the role that Hong Kong has to play, and basic market fundamentals. These opinions are insignificant. People have downplayed China and Hong Kong many times in the past, and the fact that a mainland Chinese company, listing in Hong Kong, is providing the year’s largest IPO worldwide, and far in excess of anything the US has to offer, should be a wake-up call for all those who have doubted the strength of China and Hong Kong and where the underlying trade growth fundamentals are. They remain in China in the short, medium, and long term. US and other businesses looking to access the mainland consumer market should be looking at Hong Kong as a viable, tax friendly, experienced, and efficient gateway into China.”

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China Briefing is written by Dezan Shira & Associates. The firm advises foreign investors in Asia, has done since 1992, and has 28 offices throughout China, Hong Kong, ASEAN, and India. For assistance please email us at china@dezshira.com or visit www.dezshira.com.