Alibaba raises US$21.8b in initial public offering

People walk by the headquarters of Alibaba in Hangzhou, Zhejiang province, in this April 23, 2014 file photo. Alibaba Group Holding priced its initial public offering at US$68 a share, the top end of the expected range, raising US$21.8 billion (S$27.
People walk by the headquarters of Alibaba in Hangzhou, Zhejiang province, in this April 23, 2014 file photo. Alibaba Group Holding priced its initial public offering at US$68 a share, the top end of the expected range, raising US$21.8 billion (S$27.7 billion) on Thursday. -- PHOTO: REUTERS

NEW YORK (REUTERS) - Alibaba Group Holding priced its initial public offering at US$68 a share, the top end of the expected range, raising US$21.8 billion (S$27.7 billion) on Thursday.

At that price, the IPO, one of the largest-ever, would give Alibaba a market valuation of US$167.6 billion. That will vault it above US e-commerce rivals like Amazon and eBay and give it more financial firepower to expand in the United States and other markets.

“I’d put them (Alibaba) in a class of Facebook and Google with the scale they have, growth prospects and profitability,” said Mr Scot Wingo, CEO of e-commerce software provider ChannelAdvisor.

“There’s a scarcity value there.” An Ipsos poll conducted for Thomson Reuters found that 88 per cent of Americans had never heard of the Chinese e-commerce company, which is responsible for 80 per cent of online sales in the world’s second largest economy and works with a number of businesses there including consumer online marketplace Taobao and payment service Alipay.

But that hasn’t sapped enthusiasm among multiple large US institutions, including Blackrock, which have put in orders for allocations of at least US$1 billion in shares, according to the sources.

Between 35 and 40 institutions placed orders for US$1 billion or more shares each, investors briefed on the matter said.

Investors, keen to buy into China’s rapid growth and evolving Internet sector, have been clamoring to get shares since top executives at Alibaba, including Alibaba founder Jack Ma, kicked off the road show last week.

“It was one of the more impressive IPO presentations,” said Mr Jerry Jordan, manager of the US$48 million Jordan Opportunity Fund. “I didn’t realize just quite how successful they are.”

At the top end of its range, the IPO would raise almost US$22 billion, but if underwriters exercise an option to sell more shares, as many expect, Alibaba’s market debut will top Agricultural Bank of China Ltd’s record US$22.1 billion listing in 2010.

Many investors reported difficulty in getting the full allocation of shares they were aiming for.

John Boland, president of Maple Capital Management in Montpelier, Vermont said he had put in orders for about 5,000 Alibaba shares on behalf of high net worth individuals and institutions and had been told the offer was oversubscribed and that they would probably not get the full order. “Beating the rush doesn’t count in this game,” Mr Boland said.

Alibaba’s revenue surged 46 per cent in the April to June quarter on strong gains in its mobile business, with net income attributable to its shareholders nearly tripling to US$1.99 billion, or 84 cents a share.

Mr Ma, who founded the company in a one-bedroom apartment, will have a paper fortune worth some US$14 billion, vaulting him into the ranks of tech billionaires like Bill Gates and Jeff Bezos. The deal is also expected to make millionaires out of a substantial chunk of the company’s managers, software engineers and other staff.

It also allows cornerstone Alibaba investors like Japan’s Softbank and Yahoo to profit from their foresight in getting in on the ground floor at the e-commerce giant. Yahoo is selling some US$8 billion worth of shares in the offering, leaving it with a 16.3 per cent stake. Softbank is not selling for now and will be left with a 32 per cent stake, making it the largest single shareholder.

The successful IPO sets the stage for Alibaba shares to make their debut on the New York Stock Exchange on Friday, with many investors and analysts betting that there is still room for a substantial first-day jump in the shares.

One investor said that the IPO’s underwriters, who include Credit Suisse Group AG, Citigroup Inc and Goldman Sachs Group Inc, were hoping for a first day “pop” of 10 to 15 per cent. That’s about in line with the norm for IPO debuts, whose underwriters typically seek an increase large enough to signal healthy demand but not so much so that it looks like the company and its investors “left money on the table.” Other big Chinese Internet stocks have performed well in US markets, including Baidu Inc, whose shares rocketed 354 per cent on their first trading day in 2005.

Underwriters on the Alibaba deal also include Morgan Stanley and JPMorgan Chase & Co, with Rothschild, which does not have underwriting operations, advising Alibaba on the deal.

Still, concerns that an opaque corporate governance structure and Mr Ma’s outside investments will stymie minority investors’ rights could limit the upside around the deal.

“Rarely in history has there been an IPO of this size for a company that we know less about,” Senator Bob Casey, Democrat of Pennsylvania, said in a statement on Wednesday. “I continue to be concerned that about the level of transparency from Chinese firms listing in our markets.”

Alibaba is selling 320 million shares, equivalent to about 13 per cent of the company’s capital. Nearly two thirds of those shares are being sold by existing shareholders including Ma, who will reap US$867 million, and Yahoo.