Low Price Of Babytree’s HK IPO Sees Alibaba In A Rare ‘Down Round’ Investment

According to media reports, Alibaba Group Holding Ltd has been put in a ‘down round’ investment by China’s Babytree Group, which is a parenting website operator, because of the later’s decision to price its Hong Kong IPO at the bottom of a marketing range which has reduced its valuation. Alibaba is an investor in the company.

Babytree plans to raise $217 million rather than the up to $1 billion that it had initially targeted through sale of its shares in the initial public offering (IPO) which it priced at HK$6.80 each which is at the low end of a range in which the upper range had reached HK$8.80, according to media reports.

In late May, Alibaba had invested $214 million in Babytree when the company was valued at $2 billion but now with this price range in the IPO, the compoany’s current market valuation would be at $1.5 billion instead of the May value. This would be a rarity for the Chinese tech giant as well as any tech related company of China to suffer a down round or be hit by a fall in the valuation of a company in which it had invested.

According to industry data provider PitchBookm down rounds have been experienced by 11.8 per cent of all deals that have been associated with venture capital funding so far this year globally. That number is lower than the 15.2 per cent of last year and the lowest rate in at least a decade.

According to data from Refinitiv, since 2015, Alibaba has invested in 130 startups and other companies with investments totalling $48 billion including Babytree.

There were no comments available on the issue from both Babytree and Alibaba. The media reports also did not identify the sources of information.

The post-shoe valuation of Babytree will reach $1.69 billion if the company were to completely exercise its ‘green shoe’ option which would allow it to sell up to an additional 15 per cent shares in a short window after listing.

And it is not Babytree alone. There have been a number of other instances when listing hopefuls had to suffer as their funding ambitions had to be scaled back drastically in Hong Kong. That city and its stock exchange is well on its way to become the top IPO centre of the world in terms of the volume of deal this year.

There was optimism early this year that the market would be steady or improve and this resulted in a number of companies getting caught up in the optimism. Such companies decided to go ahead with launching of their IPOs even though the market conditions got bad. There has been a drop of 14 per cent so far this year in Hong Kong share prices even as there are rising concerns of the impact of the rise of interest rate and the worsening trade relations between China and the United States.

(Adapted from Reuters.com)

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