May 28, 2019 / 5:35 AM / a month ago

Breakingviews - Alibaba’s cracks show by revisiting Hong Kong

FILE PHOTO: The logo of Alibaba Group is seen at the company's headquarters in Hangzhou, Zhejiang province, China July 20, 2018. REUTERS/Aly Song/File Photo GLOBAL BUSINESS WEEK AHEAD

HONG KONG (Reuters Breakingviews) - It could be a tough road back to Hong Kong for Alibaba. Five years after the $400 billion Chinese e-commerce company opted to go public in New York, it is working on a plan to raise as much as $20 billion from a secondary listing. Seeking fresh capital alongside younger rivals suggests its dominance is under threat.

Founder Jack Ma has long eyed having Alibaba’s equity traded in the Fragrant Harbour. In 2014, the financial hub’s regulators balked at his corporate governance, which gives a group of self-selecting executives the power to nominate most of the board. Ma ultimately raised a record $25 billion on the Big Board. Since then, however, Hong Kong’s bourse operator has eased its listing requirements. Alibaba could file to sell stock there in a matter of months, Reuters reported.

There is some validity to the idea. Alibaba’s shares have traded at a valuation discount to its similarly sized Hong Kong-listed arch-rival, Tencent. A scarcity of publicly-traded technology companies in the former British colony is one factor. Better access to money from the mainland, where investors are more familiar with Alibaba’s sprawling empire, also could help.

Even so, it’s a curious time to be seeking liquidity or funding. For example, some $3.3 billion of Alibaba shares changed hands last Friday, making it the most actively traded company by dollar volume on the New York Stock Exchange. Nor is it obvious why Alibaba might need $20 billion. The company’s businesses threw off some $3 billion of operating cash in the three months to March, boosting its trove to nearly $30 billion.  

That does not mean, however, that a new listing would come from a position of strength. China’s sputtering economy and escalating trade and tech tensions with the United States are weighing on Alibaba, whose shares have fallen by 22% over the past year. Costly investments in everything from cloud computing to Southeast Asian e-commerce have yet to deliver meaningful returns as growth at home slows. Upstart challengers such as the $24 billion Pinduoduo also have increasingly put the goliath on its back foot. The quest for a Hong Kong market debut makes some of these cracks more apparent.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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