Alibaba shares to sell at discount in landmark $17.6b Hong Kong listing: Sources

The company has given guidance to prospective institutional investors that its shares will price at HK$176 each.
The company has given guidance to prospective institutional investors that its shares will price at HK$176 each.PHOTO: REUTERS

HONG KONG (REUTERS) - Chinese e-commerce giant Alibaba Group will raise up to US$12.9 billion (S$17.6 billion) from its landmark Hong Kong listing and is set to price its shares at a 2.8 per cent discount to their New York close, sources with direct knowledge of the matter said.

The deal - the largest share sale in the city for nine years and a world record cross-border secondary share sale - will be seen as a boost to Hong Kong following more than five months of anti-government protests and its recent slide into its first recession in a decade.

Alibaba is due to officially price the deal later on Wednesday (Nov 20) but three sources said investors had been told HK$176 (S$30.60) was likely to be the end number.

“Unless there’s a dramatic change in market conditions, that will be the final price,” said one source.

All three asked not to be named because the information was confidential.

At that price Alibaba would raise at least HK$88 billion - a symbolic total because the number 8 is associated with prosperity and good fortune in Chinese culture. It could eventually rise to US$12.9 billion if a so-called ‘greenshoe’ over-allotment option were exercised.

An Alibaba spokesman declined to comment on the pricing guidance given to investors.

Alibaba shares closed in New York on Tuesday at US$185.25, up 0.35 per cent.

One of Alibaba’s New York-listed American Depositary Shares (ADS) is worth eight of its Hong Kong shares.

While the discount to Alibaba’s last close was set at 2.8 per cent, analysts noted the price represented a 3.7 per cent discount to the undisturbed Alibaba share price on Nov 12 - the day before the deal was launched.


“I was expecting it to be done at around 4 per cent-5 per cent so this is about right,” Sumeet Singh, head of research at Aequitas and who publishes on research website SmartKarma, said.

“The deal represents just about 4.4 days of three-month average daily value traded and hence, relatively it’s not a big deal for a stock of Alibaba’s size.”
Alibaba’s deal comes amid a late-year rush of share sales, with Saudi Arabia’s state oil giant Aramco revving up to price an initial public offering so large it threatens to eclipse Alibaba’s own record US$25 billion float in 2014.

A deal at the top of Aramco’s price range would raise US$25.6 billion and value the company at US$1.7 trillion - short of the US$2 trillion it had originally sought.


Hong Kong’s army of small investors have welcomed the Alibaba deal, subscribing for so many shares they will be allotted the maximum 10 per cent of the deal they could have got, three sources said.

Hong Kong operates a ‘clawback’ system where heavy oversubscription from small investors - in this case, at least 20 times the original 2.5 per cent offered to retail - can result in them getting a greater share.

The numbers imply they have collectively put up at least US$5.6 billion in the hope of getting shares in the Chinese e-commerce champion.

A float by Alibaba is seen as particularly significant to Hong Kong since it lost the company’s IPO to New York in 2013 because the Asian financial hub would not then accept its unusual governance, where a self-selecting group of insiders control the majority of board seats.

That decision ultimately resulted in Hong Kong rule changes last year that have allowed Alibaba to conduct this listing.

Bankers hope other US-listed Chinese tech giants will follow suit.

Alibaba’s listing ceremony is due to be held at the Hong Stock Exchange next Tuesday and the event will be closely watched given the ongoing protests unfolding across the city.

China International Capital Corporation (CICC) and Credit Suisse are leading Alibaba’s deal.