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Alibaba to start trading in Hong Kong to secure its global expansion (updated)

It has started a global offering of 500 million ordinary shares to raise about USD 13.8 billion.

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Chinese e-commerce giant Alibaba has initiated a global offering of 500 million ordinary shares, comprising an international offering of 487.5 million ordinary shares and a Hong Kong public offering of 12.5 million ordinary shares, according to a prospectus supplement it filed with the United States Securities and Exchange Commission (SEC) on Wednesday.

Alibaba added in the prospectus supplement that it has applied to list these ordinary shares on the Hong Kong Stock Exchange. The company has also published its post-hearing information pack on Wednesday, indicating it has gained listing approval from the Hong Kong bourse.

The public offering price of the ordinary shares will be determined on or around November 20, said Alibaba in its SEC filing. The company added that these ordinary shares will not commence trading on the Hong Kong Stock Exchange until they are delivered, which is expected to be about four business days after the price determination date.

The shares in the Hong Kong public offering will be priced at no more than HKD 188 (USD 24.02) per ordinary share (equivalent to USD 192.19 per ADS), Alibaba announced on Friday, adding that the offer price for the international offering tranche may be set higher than the maximum Hong Kong public offering price, but the detailed cost will be set by November 20.

Alibaba said that it will determine the offer price for both the international offering and the Hong Kong public offering by analyzing, among other factors, the closing price of its ADSs, around November 19, according to Alibaba’s updated prospectus supplement filed with the SEC on Thursday.

Alibaba’s market capitalization reached USD 464.5 billion on Thursday, based on the price of its New York Stock Exchange-traded stocks. The firm closed at USD 182.8 apiece, up 0.18% from one day earlier. Its shares have edged up 33.7% since the beginning of this year.

The company has also granted the international underwriters an option, represented by China International Capital Corporation Hong Kong Securities Limited and Credit Suisse (Hong Kong) Limited, to purchase up to an additional 75,000,000 ordinary shares, according to the SEC filing.

Alibaba said that net proceeds from the offering could hit USD 13.75 billion if underwriters exercise their option to purchase additional ordinary shares.

The firm has set five-year goals to serve its global consumers, who are expected to generate more than RMB 10 trillion of consumption on Alibaba’s platforms.

Back in 2013, the Hong Kong Stock Exchange was the first choice for Alibaba to list but the behemoth quitted as its dual-class share structure was not accepted there then. The company later completed its USD 21.8 billion initial public offerings, and listed its American depositary shares (ADS) on the New York Stock Exchange in September 2014.

The Hong Kong Stock Exchange changed its IPO rules in April 2018, allowing companies with dual-class share structure to list there, ushering in new economy companies such as Xiaomi and Meituan Dianping.

Alibaba’s new proceeds could be used for implementing its strategies for driving user growth and engagement, empowering businesses to facilitate digital transformation, improving operational efficiency, and continuing to innovate.

With strong cash generation metrics and net cash of USD 13 billion in the second quarter of fiscal year 2020, Alibaba does not need to raise money, according to Arun George, who published his analysis on Smartkarma on Thursday. He added that Alibaba’s enthusiasm to list in Hong Kong has been attributed to increasing the accessibility of its shares to Chinese investors, and as an insurance against a Trump possible move to delist Chinese companies from US stock exchanges. Also, to relocate capital away from HK-listed rivals Tencent and Meituan.

“To facilitate fungibility and conversion between ADSs and ordinary shares, and trading between the NYSE and the Hong Kong Stock Exchange, we intend to move a portion of our issued ordinary shares that are represented by ADSs from our Cayman share from our Cayman share register to our Hong Kong share register, announced Alibaba in the prospectus supplement on Thursday, adding that holders of ordinary shares registered on the Hong Kong share register will be able to convert these ordinary shares into ADSs, and vice versa.

Alibaba’s main rival Tencent, hit a market capitalization of HKD 3.05 trillion (USD 389.7 billion) after it closed at HKD 319.8 on the Hong Kong Stock Exchange on Thursday. Its share price is now almost the same as at the beginning of this year.

Li Chengdong, a Dolphin Thinktank analyst focusing on e-commerce study told KrASIA on Friday that some funds could just sell Tencent’s shares to buy into Alibaba’s shares, which could bring a negative impact on stock prices of Tencent.

This article was updated to reflect developments.