Alibaba IPO a landmark for China firms, will encourage others to follow, say analysts

Alibaba's IPO in the US, which is expected to raise US$21.8 billion (S$27.5 billion), is potentially the largest in the world.
Alibaba's IPO in the US, which is expected to raise US$21.8 billion (S$27.5 billion), is potentially the largest in the world.PHOTO: AGENCE FRANCE-PRESSE

The US listing will encourage other Chinese tech firms to follow: Analysts

The months leading up to e-commerce giant Alibaba's initial public offering (IPO) - expected to happen this week - have been a watershed moment for Chinese technology companies seeking a listing in the United States.

Excluding the Alibaba IPO, which is expected to raise US$21.8 billion (S$27.5 billion), Chinese technology company IPOs have already brought in about US$3.3 billion this year - the highest annual total in the last decade, according to financial data and technology company Dealogic.

Companies that listed here last year include China's Twitter equivalent Weibo, which raised US$286 million, and online retail company JD.com, which took in US$1.7 billion.

This year, "not a single Chinese IPO has traded down," said Ms Kathleen Smith from IPO exchange-traded fund manager Renaissance Capital.

In fact, she said, Chinese companies have been on average up 46 per cent since their IPOs, thus showing sustainable returns.

"This is stronger than any other sector of the IPO market," she said. "As a group, Chinese IPOs have performed well."

Finance analysts said Chinese companies have been flocking to the US this year because of the rising US stock market and the less stringent regulations, compared with the stock market in China.

Also, "US institutional investors understand that companies like Alibaba can grow their profits by a large amount, and are willing to pay a high price today," said Mr Jay Ritter, professor of finance at the University of Florida.

Prof Ritter said there was a boom in Chinese firms listing in the US in 2007, but that came to an end with the drop in both Chinese and US stock prices in 2008 due to the financial crisis.

Figures from Dealogic show that the value of Chinese technology deals was US$3.2 billion in 2007 and just US$49 million in 2008.

The recovery of the US market lured back Chinese companies, with the most anticipated IPO being Alibaba's, which analysts said is looking very promising.

This week, Alibaba raised its target price to between US$66 and US$68 a share, from US$60 to US$66 earlier this month, reflecting high demand.

This landmark IPO, potentially the largest in the world, will encourage other Chinese tech firms to follow suit, said analysts.

Other companies, said Ms Smith, will likely "build on the current successes".

Already, experts understand that Dianping - China's equivalent of Yelp, a social networking site that lets users post reviews and rate businesses - and Beijing Momo, a location-based instant-messaging application are possibly eyeing a listing in the US.

Investors too have become comfortable buying Chinese tech stocks, said experts, who do not believe their appetites are likely to wane in the near future.

As for the unusual structure of Alibaba's IPO, where investors are not actually buying equity in China's largest e-commerce company, but buying into a firm in the Cayman Islands which owns the rights to the revenue generated by the business, Prof Ritter said it is "just one more risk on top of many others, such as corporate governance, political risks and business risks, that investors have to bear".

Added Ms Smith: "While the music is playing, people are not worried."

simlinoi@sph.com.sg