Alibaba Enjoys Rip-roaring Success as it Debuted on the Hong Kong Stock Exchange

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The Chinese e-commerce giant Alibaba (NYSE:BABA) enjoyed a successful secondary listing on the Hong Kong Stock Exchange today as its share price surged by over 6 percent in what is the largest equity offering so far this year.

Alibaba issued 500 million ordinary shares as it sought a secondary listing in China’s domestic capital market. As a refresher, the tech titan currently holds the record for the world’s largest IPO with its $25 billion flotation on the NYSE in 2014 at $68 per share. Moreover, the deal underwriters retain an over-allotment option (also known as the greenshoe option) – a clause in the underwriting agreement that allows underwriters to buy up to an additional 15 percent of a company’s shares at the offering price in order to foster price stability – that corresponds to a maximum of 75 million shares.

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Alibaba’s shares were issued at an opening price of HK $176 only to rip higher by over 7 percent in order to reach the intraday high of HK $189.50. The share price ultimately closed at HK $187.60 which constitutes a healthy 6.6 percent gain relative to the issue price.

It is important to note that Alibaba’s American Depository Shares (ADS) closed at $190.45 on Monday. Moreover, the company’s Hong Kong listing follows the established proportion of eight Hong Kong shares for a single share of ADS which, in turn, implied a share price on the Hong Kong Stock Exchange of HK $186.30. Interestingly, the tech giant’s Hong Kong closing share price of HK $189.5 is 1.72 percent higher than this implied price. Readers should remember that Alibaba’s Hong Kong and New York listings are fungible – investors can trade the same shares on either exchange – and that the pricing on the two exchanges are unlikely to diverge significantly from each other.

The Chinese e-commerce giant has managed to raise at least $11.3 billion from its secondary listing and this amount can further increase to $12.9 billion if the over-allotment option is exercised within 30 days of the trading debut. During its first day of trading in Hong Kong, Alibaba recorded a trading volume of HK $13.99 billion ($1.78 billion) according to the data provided by Refinitiv. For context, the daily turnover on the Hong Kong Exchange this year has averaged $11.6 billion, thereby, implying that Alibaba accounted for over 10 percent of total market turnover on Tuesday. As per Refinitiv data, Alibaba is already the fifth most-traded stock on the NYSE this year with an average turnover of $2.6 billion. Given the size of the offering and the trading volume involved, the tech giant’s Hong Kong debut now ranks third on the bourse as far as the first-day turnover is concerned.

According to Alibaba, it will utilize the proceeds from the offering to invest in AI and other online services. Readers should bear in mind that, with a market capitalization of $497.24 billion, Alibaba is the most valuable company in Asia and seventh globally. In the quarter that ended on 30th September 2019, the company earned a revenue of RMB 119.017 billion (US$16.651 billion), thereby, constituting a year-over-year increase of a whopping 40 percent.

The technology sector has become, of late, one of the core battlefields in the ongoing U.S. – China trade war. Consequently, amid the threats emanating from the Trump administration to forcibly delist Chinese companies from American stock exchanges and to prevent U.S. government pension funds from investing in the Chinese market (read our related coverage here), Alibaba has followed a prudent strategy in trying to hedge its bets by securing a safer alternate avenue for additional capital procurement purposes.