Alibaba goes offshore but Hong Kong bourse still doing well

The negative perspective highlights the monetary loss to Hong Kong of listing fees for what could be as much as a US$ 15 billion IPO, and the damage to the exchange’s reputation for letting this prestigious deal slip through its fingers. Alibaba co-founder Joe Tsai was quick to rattle his sabre, warning that the world’s top firms would ignore the territory unless its exchange becomes more flexible. 

On the positive side, the exchange’s refusal to compromise its governance standards and its commitment to ensuring all shareholders of its listed companies are treated the same is a demonstration of its fairness. Exchange President Charles Li said “As enshrined in our charter, in the event of a conflict, public interest is put ahead of shareholder interest,” although he was careful not to refer directly to Alibaba. 

The sticking point was Alibaba’s proposal to issue two types of shares that would give founders and management a greater voting weight compared to minority shareholders – specifically, 28 partners would keep control over a majority of the board, despite only having about 13 per cent of the company’s shares.

While a dual-class share structure is not uncommon in the US, and has been used in such high-profile tech stock listings as Facebook and Google, it contravenes Hong Kong’s listing rules.

Alibaba has yet to decide where it will list. While initial reports pointed to New York, more recent speculation suggests that its dual-listing structure might go too far for the big US exchanges to allow.

The loss of such a huge deal from a company which aims to surpass Wal-Mart to become the world’s biggest retail network is unlikely to affect confidence in the Hong Kong exchange, which has performed well this year. 

After a tough 2012 that featured several underperforming IPOs, Hong Kong has rebounded, raising about US$ 7.9 billion from new offerings by the end of September, according to Dealogic, compared with US$ 5.6 billion over the same period last year. The exchange’s US$ 2.16 billion takeover of the London Metal Exchange last year has also helped lift revenue from trading commodities, with overall trading volume up 9% during the first half.

If anything, the exchange’s refusal to buckle to Alibaba is likely to boost its long-term reputation for corporate governance in a region dominated by opaque ownership structures that make it hard for outsiders to invest with confidence.

And while there was no “open sesame” for Alibaba, the exchange’s immediate prospects appear healthy. 

In the pipeline for the remainder of this year are reportedly six deals that could raise more than US$ 1 billion each, plus a break-up by local tycoon and Asia’s richest man, Li Ka-shing, of his electricity assets in a deal which could be worth as much as US$ 5 billion.

So as Alibaba looks for a home exchange, Hong Kong is getting on with its business.

 

For more columns in this series please see

www.bangkokbank.com