The secondary listing is of strategic importance to Alibaba since it would provide it with fresh funds which it needs to beat its U.S. rivals; technology is a sector where China lacks behind the U.S.; fresh capital infusion is required in the newer sectors it has expanded into such as cloud computing.
According to sources familiar with the matter at hand, Alibaba plans on raising $20 billion through a secondary listing in Hong Kong.
The deal assumes significance since it would add billions to the Chinese company’s war chest so that it can better compete with American firms in the field of technology – a key industry that China has flagged for growth.
Alibaba is working with financial advisers on the proposed IPO and aims to file an application confidentially in Hong Kong as early as the second half of 2019, said three sources on the condition of anonymity since the plans are yet to be disclosed publicly.
Sources have cuationed that deals of the proposed IPO are not yet clear and that the size of the offering could change. As per a source with direct knowledge of the matter, the IPO is likely to be in the range of $10 billion to $15 billion.
Alibaba’s spokesman declined comment.
Since its U.S. listing, Alibaba has nearly doubled in size. It has become the largest-listed Chinese company in the U.S. with a market value of more than $400 billion.
A Hong Kong listing would provide Chinese mainland investors their first direct access to one of China’s biggest success stories, via the stock connect trading link between Hong Kong, Shanghai and Shenzhen.
Furthermore, it would also provide Alibaba with an extra pocket of liquidity and potentially a better valuation if its brand grows root among retail investors in Hong Kong.
According to Refinitiv data, China’s Tencent, which is listed in Hong Kong, is trading at 26 times its expected earnings compared to Alibaba’s 22 times in New York.
According to analysts, Alibaba has peaked its potential user base of e-commerce customers in top Chinese cities. The Chinese company will need a fresh infusion of capital since the new sectors it has expanded into, which includes cloud computing, require high upfront investments.