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Alibaba is considering a listing in Hong Kong which could raise $20 billion for the company.
In 2014 when deciding when and how to take Alibaba (NYSE:BABA) public, the company decided to have an IPO on NYSE. During this time the climate was good for IPO’s and the relations between China and the United States were also in good shape. The IPO on NYSE (New York Stock Exchange) is still recognized as the biggest IPO of all time raising $25 billion valuing the company at $169 billion at the time. Since the IPO the value of the company has been steadily rising and is now roughly $400 billion.
Allegedly the main reason for the IPO to be in the United States though was NYSE and the SEC (Security and Exchanges Commission) are welcoming to different stock classes so the founders could maintain control of the company, whereas Jack Ma’s preferred HKEX (Hong Kong Stock Exchange) is not as welcoming to control methods that are not based around majority ownership. When filing for the IPO Jack Ma and co-founder Joseph Tsai did not have majority ownership of the company, but their corporate structure still allowed them control. In 2018 HKEX started to approve dual-class share governance for stocks for Meituan Dianping and Xiaomi Corp. The stock exchange accepting dual classes means that Alibaba could now list with their current governance on the exchange with less intervention from regulators on the exchange.
We have heavily reported on the increasing tensions between the United States and China around aspects of the trade war between the countries which is going to have a massive impact on the Chinese tech sector, with the latest article highlighting rare earth metals and Huawei. These increased tensions may be part of the reason that Alibaba is considering a second listing in Asia, although their primary listing would still be in the United States. Alibaba stock has fallen roughly 20% since the beginning of May attributing much of the loss to speculation around the trade war between the two nations and lower than expected Q1 2019 earnings. Since mid-2018 there have been signs that the Chinese economy is slowing down with multinational companies reporting fewer sales in the region, however, their reported GDP growth was around 7% for the year and the government is targetting between 6 and 6.5% for 2019.
The final point of the listing shouldn’t be overlooked either, raising an additional $20 billion for any company would be a good idea to get ready for a long trade war, and lowers barriers to Asian investors. It will be interesting to see if they make the listing in the next few weeks and what impact it would have on their Q2 performance, we’ll be providing updates as we get them for this story.