Alibaba Ipo Listing

3) If you were Charles Li what would you do? What are the pros and cons in listing in Hong Kong versus New York? If you were Jack Ma where would you list? Under what conditions?

If we were Charles Li, we would allow Alibaba to be listed on the HKEx, using the exceptional circumstances provision, in particular due to the following -

• In 2013, market conditions appeared on the upswing. During that period Hang Seng grew by 2.9%, led by the technology sector which had an upswing of 70%. However, during the same period NASDAQ grew by 38.3%, outperforming the Hang Seng comprehensively. The numbers suggest that technology firms were showing a significant growth, and were leading the market upswing.

• Tencent Listing – Tencent, a Chinese internt giant, which listed in the Hong Kong exchange in 2004, contributed roughly 3% of HKEx’s trading volume. Alibaba presented a potential to add a higher percentage to HKEx’s daily trading volume, considering the size of Alibaba, and most Hong Kong investors knew Alibaba and had used its services before.

• Listing of Alibaba presented a potential of reviving the IPOs of Chinese technology firms on the exchange. In recent times, Chinese technology firms had chosen to list in the US stock exchanges, as most technology firms have a dual class share structure, and could not meet the strict profit requirements of the HKEx. Listing of Alibaba would send a signal that the Hong Kong Exchange was open to technology firms and under exceptional circumstances, as defined by the HKEx policy, allow firms with dual class share structure to be listed on the exchange. As seen from the data in the preceding points, technology firms presented a potential to significantly increase the Hang Seng index.

The pros and cons of listing in Hong Kong versus New York are –

Pros-

• Majority of the investors knew about Alibaba and had used its services before.

• Majority of the customers within the Chinese market, hence listing in HKEx would be in a geography which has similar culture and language.

• Lower compliance cost and Sarbanes Oaxley act not applicable.

• Low Investment banking fees for large sized IPOs. The fees were in the range of 2.5-3.5%, which was 50% lower than the fees in US (7%).

• Prices of US traded firms were sensitive to movement in the US market even though the net asset values were completely determined by the asset values that were outside the US. Listing in HKEx would shield prices of companies like Alibaba from movement in the US market.

• Lower chances of class action suits, which are more prevalent in the US.

Cons –

• Lower US investor confidence with Chinese accounting practices after scandals with Chinese Media Express Holdings, Sino-forest and other fraudulent Chinese companies.

• New York investors valued internet companies with higher multiples compared to investors in Hong Kong.

• Size and depth of US exchanges unmatched by HKEx.

• Low visibility for the company in US market, especially if the company wants to acquire firms in the US.

If we were Jack Ma, we would list in the US stock exchange, in particular due to the following –

• Visibility in the US market – Alibaba’s strategy in 2013 and beyond is to grow through acquisition and cross-border expansion. The aim is to extend mobile leadership, enhance data and cloud computing technologies, and since June 2010 had acquired companies in the US. Listing in US, will give a flip to Alibaba’s visibility in US, making it easier to acquire US companies to create synergies in the areas that