All my previous predictions that e-commerce leader Alibaba would ultimately make its mega IPO in Hong Kong were wrong, with word that the company is now firmly fixed on New York for its highly anticipated share sale. In my defense, I should say that a huge surge in positive sentiment over the last 5 months towards China Internet stocks on Wall Street undoubtedly helped to change Alibaba's mind. The company had previously stated on numerous occasions that Hong Kong was the preferred venue for its blockbuster IPO, which reports are now saying could raise up to $15 billion, making it the world's biggest Internet offering since Facebook (NASDAQ:FB) raised $16 billion in 2012.
Alibaba's choice of New York over Hong Kong might also be due in part to a recent pullback in shares for Tencent (OTCPK:TCTZF), the only major Chinese Internet company now listed in Hong Kong. Tencent shares have retreated 13 percent over the last week in a long overdue correction, though it's also worth noting that they're still up 150 percent over the last 2 years. Tencent is China's largest listed Internet company with a market value of $130 billion, though Alibaba is likely to get a similar valuation with its upcoming IPO.
All that said, let's look more closely at the latest reports that are revealing Alibaba's change of heart, which comes after months of sparring with the Hong Kong securities regulator over conditions for a listing in the former British colony. According to the reports, Alibaba has formally chosen the U.S. for its listing, and is in discussions with 6 investment banks to underwrite the offering. (English article; Chinese article) The 6 are Citigroup (NYSE:C), Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB), Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:BJI), and I do expect we'll see at least 4 of those and possibly all of them selected to underwrite the massive deal.
Alibaba, whose largest shareholders include U.S. search giant Yahoo (NASDAQ:YHOO) and Japan tech investor Softbank (OTCPK:SFTBF), had been locked in negotiations for months with Hong Kong securities regulators over an exception to local listing rules. That exception would have allowed Alibaba to adopt a corporate structure that allowed a core group of managers to retain control over the company's board, even if those managers didn't own a majority of the company's stock. In the end the Hong Kong regulator refused to grant the exception, even though I was predicting the pair would reach a compromise.
At the end of the day, it appears that Alibaba was anxious to make its offering as soon as possible to take advantage of a sudden surge in interest towards China Internet stocks by U.S. investors. That surge came quite unexpectedly, after more than 2 years of chilly sentiment towards the sector. Chinese Internet companies like 58.com (NYSE:WUBA) and Autohome (NYSE:ATHM) have reaped huge rewards from the sudden upswing, with their shares more than doubling since making New York IPOs late last year.
So all of that said, what can we expect for Alibaba's blockbuster IPO? I do expect the company will accelerate its listing plan to get to market as soon as it can, since it's quite possible the current groundswell in positive sentiment could end by the middle of this year. I would expect the offering could do quite well initially if Alibaba can launch the IPO by June, though the entire sector could stagnate or even see a pullback in the second half of the year as sentiment starts to wane.
Bottom line: Alibaba is likely to accelerate its plan for a New York IPO to take advantage of positive sentiment, potentially becoming the world's biggest new Internet listing since Facebook.
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