Chinese e-commerce giant Alibaba made its debut on the Hong Kong market this Tuesday, marking a solid start. This was in striking contrast to other hyped up IPOs like Uber, that disappointed investors on their first day.
A premium on New York
Alibaba made the biggest IPO this year on Hong Kong, and investors went gaga over the possibility of owning a piece of the company. On its first day, stocks in Hong Kong traded at a 6.9% premium on New York. The secondary listing from the company comes amidst protests and political issues in Hong Kong, showing confidence in the region’s financial future.
The listing sold shares worth at least $11.3 billion. However, its value could increase to $12.9 billion if Alibaba and its underwriters decide to use the greenshoe option. This will allow underwriters to allot a few million more shares, raising the value of the IPO and their commission. They could exercise this option within 30 days of the listing.
Alibaba gets a financial boost
Alibaba is the seventh-largest company in the world and the largest in Asia. With its secondary listing, it will raise funds to invest more in its up and coming online services. Analysts suggest that the listing could be helpful for the company’s China and Hong Kong investors who are afraid that US-China trade tensions could affect the New York stocks of the company. While the chief negotiators from both sides suggest that they talking about cutting Phase 1 of the trade deal, there is still an air of uncertainty that could hurt the company.
On Tuesday afternoon, the shares of the company moved up from the issue price of HK$176 to HK$188.10. Though stocks in Hong Kong are trading at a premium, they are fungible. This means that they can trade at both Hong Kong and New York. Therefore, there will not be much differentiation in prices along the way.
According to market participants, the small premium on New York suggests that investors are ready to invest in companies they know well. Moreover, Alibaba is a company that manages to keep investor expectations high. In June next year, the Stock Connect program will link Hong Kong Stock Exchange to those of Shenzhen and Shanghai, which will open a new world of opportunities for investors. It could also help in improving the valuation of the Alibaba stock.