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Alibaba's Hong Kong Share Sale Is Feeling Lucky

Nisha Gopalan
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Alibaba's Hong Kong Share Sale Is Feeling Lucky

(Bloomberg Opinion) -- Hong Kong is doing everything it can to ensure Alibaba Group Holding Ltd.'s listing is a roaring success. That's turning the $12 billion mega-sale into a hot item — if you can get your hands on the shares.

Alibaba will initially offer only 2.5% of the offering to individual investors, a quarter of the allocation specified in Hong Kong’s listing rules and half the 5% level typically allowed for sales valued at more than HK$10 billion ($1.3 billion). The retail portion may be increased to as much as 10% depending on the level of demand, though that’s still well below the 50% that the listing rules require for the most heavily subscribed offers.

The effect of squeezing down the retail offering may be to increase the perceived rarity value of Alibaba shares, magnifying the buzz around what may be Hong Kong’s biggest share sale since 2010. For example, an allocation that is barely covered at 10% would be four times subscribed at 2.5% with the same level of demand.

Hong Kong Exchanges & Clearing Ltd. has done its utmost to accommodate Alibaba, introducing rules that allow dual-class shares after resisting change for a decade — and losing the company’s $25 billion initial public offering to New York in 2014. The word “waiver” appears 80 times in Alibaba’s prospectus.

With Hong Kong’s economy and markets rocked by protests, there’s much riding on a successful sale. After the listing, HKEX will be home to Asia’s two largest technology companies in Alibaba and Tencent Holdings Ltd. That could help the exchange attract more tech plays such as Southeast Asian ride-hailing giants Grab Holdings Inc. and Gojek.

There are reasons to expect Alibaba’s Hong Kong stock to do well. Many mainland Chinese investors will get their first chance to buy shares of the country’s most valuable corporation, once Alibaba is included in the “stock connect” trading pipes that link Hong Kong with the Shanghai and Shenzhen exchanges. Capital controls prevent Chinese investors from easily accessing overseas stock markets, meaning that only those with money parked outside the mainland can trade Alibaba’s U.S. stock. And Chinese technology companies often attract higher valuations on local exchanges than overseas.

Alibaba is at the forefront of China’s digital and consumer economies, with its Taobao and Tmall sites continuing to thrive as weakening growth prompts more people to seek bargains online. The company reported record sales for its Singles’ Day shopping festival on Nov. 11 and posted a 40% surge in September-quarter revenue. Its New York-traded stock had risen 33% this year as of Thursday’s close, and 54 of 55 analysts tracked by Bloomberg rate the stock a buy (the other is a hold).

Institutions are sure to support the sale, encouraged by expectations of a wall of Chinese money joining them. Demand will come from Asian funds that have overlooked Alibaba previously because they want to trade in their own time zone. Hedge funds also sense opportunity. An expected price gap between Alibaba’s New York and Hong Kong shares is fueling a colossal arbitrage trade, Fox Hu and Carol Zhong of Bloomberg News reported Nov. 14. Alibaba will raise as much as $13.4 billion if an over-allotment option is exercised. The institutional offering will be priced on Nov. 20.

In a possible fillip for retail demand, the offering will be Hong Kong’s first fully paperless listing, according to Reuters. Whether by accident or design, that means individuals won’t have to line up at banks or brokerages to obtain application forms — a potential deterrent given the unrest. 

Even the numbers associated with the listing are auspicious. Alibaba has capped the per-share price for individual investors at HK$188 apiece — double eight is particularly lucky in Chinese. And the company will trade under the stock code 9988, which sounds like “forever prosperous.” It looks like no one is leaving anything to chance.


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Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

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