Alibaba Group Holding’s $11.3bn secondary listing in Hong Kong last November has spurred other companies to consider IPOs in the city, including secondary offerings from China’s other US-listed flagship technology firms.
Most prominent is talk of a flotation by Ant Financial Services Group, operator of online payment service Alipay. The Alibaba partner is expected to raise a multi-billion-dollar IPO while aiming for a market capitalisation as high as $200bn. When it does finally turn up, there is little doubt of its success.
China’s e-commerce giant has also had an effect on companies outside of its group. Much to the excitement of Hong Kong’s capital markets, there are reports of China’s other US-listed big hitters considering secondary listings on the HKEX.
Names such as Baidu, Ctrip, JD.com and NetEase are discussing potential Hong Kong offerings with investment banks. In China’s tech sector, these companies are huge names in their own right. However, they cannot expect the same reception as their larger peer.
Alibaba is rooted in tech but is increasingly seen as a consumer stock. Its American Depository Shares (ADS) are often treated as proxy exposure to the Chinese economy.
In the minds of investors, the company arguably enjoys the strength of China but comes without any of the multitude of its geopolitical and economic problems. The country’s leaders have largely given the nod to Alibaba’s winning model, even wanting a piece of the action for themselves. The government placed a chunky order for the company’s secondary IPO through the sovereign wealth fund.
Alibaba launched its Hong Kong listing despite a sudden resurgence in local protests and came out successfully, boosting the benchmark Hang Seng Index with it. Those following, from Baidu through to NetEase, do not carry the same clout.
Baidu, China’s answer to Google, has seen its stock price fall around 13% over the past year, putting its market cap at near $48.7bn. Alibaba’s ADS has risen by almost 50% across the same period, valuing the company at around $610bn.
China’s biggest tech firms chose to list in the US at least in part because they could issue dual-class shares. Alibaba floated for $25bn in 2014 on the New York Stock Exchange with weighted voting rights shares. It passed over Hong Kong because the bourse wouldn’t allow it to use a WVR structure.
The HKEX finally succumbed and in April 2018 added a chapter to its regulations allowing technology companies to float dual class shares. The move, which the exchange hoped would inspire a flurry of WVR offerings and dual-listings by US-traded Chinese firms, did not take off as quickly as expected. Alibaba’s secondary offering was only the third to include dual-class shares.
The e-commerce firm has done Hong Kong a service, leading the way and allowing China’s other national champions to follow. But those firms will be followers for a reason. Look for the Alibaba halo to be a clear pricing differentiator in the coming years.