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Paytm backer Alibaba plans $20-bn Hong Kong listing to boost investment war chest
Photo Credit: Reuters

Alibaba is considering raising as much as $20 billion through a secondary listing in Hong Kong, people familiar with the matter told Reuters, lining up a second blockbuster deal following its 2014 record $25 billion float in New York.

The deal, which would be the sixth-biggest follow-on share sale ever, would give Alibaba a war chest to keep investing in technology - a priority for China as growth flags and as the world's second-largest economy faces an escalating trade spat with the United States.

The e-commerce giant is working with financial advisers on the offering and is aiming to file an application confidentially in Hong Kong as early as the second half of 2019, three people said on condition of anonymity as the plans are not public yet.

They cautioned that many details were not clear, including the planned size. One person with direct knowledge said it was more likely to be between $10 billion and $15 billion.

At $20 billion, Alibaba's deal would rank behind NTT's 1987 $36.8 billion sale, crisis era offerings of $24.4 billion and $22.5 billion from the Royal Bank of Scotland and Lloyds Banking Group, as well as the $20.7 billion raised by U.S. insurer AIG in 2012, Refinitiv data shows.

A spokesman from Alibaba declined to comment.

Bloomberg was the first to report the planned secondary listing.

Added liquidity

Since its U.S. listing, Alibaba has nearly doubled in size to become the largest-listed Chinese company with a market value of more than $400 billion.

A Hong Kong listing would give 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.

It would also give the company an extra pocket of liquidity and potentially a better valuation if the household name became a favourite among retail investors in Hong Kong.

Rival Tencent, which is listed in Hong Kong, is trading at 26 times its expected earnings compared with Alibaba's 22 times in New York, according to Refinitiv data.

Alibaba's revenue growth has been slowing compared to its peak in early 2017 as China's e-commerce industry matures.

Analysts argue that the company has begun to exhaust its potential user base of e-commerce customers in top Chinese cities, which creates a bottleneck for sales.

In recent years, it has expanded into new sectors including cloud computing division and Hema, its chain of brick-and-mortar supermarkets - both of which need high upfront investment.

Homecoming

An Alibaba float would be seen in Hong Kong as a victory, after the city lost the tech giant's initial public offering to New York because its then rules precluded it accepting Alibaba's governance structure, where a self-selecting group of senior managers control the majority of board appointments.

Hong Kong last year amended its rules to make it easier for "innovative companies" listed in New York or London to carry out a secondary listing in Hong Kong, as part of a broader shake up of the city's listing regime.

The new rules allow already-listed companies based in greater China, whose original float was before Dec. 15, 2017, to list in the city even if their current weighted voting rights structures contravene Hong Kong's rules for primary listings.

Such companies can also apply confidentially for a listing, as Alibaba is expected to do.

Early last year, when Hong Kong was preparing to allow dual-class share listings, Alibaba founder Jack Ma had said that the company would "seriously consider" a listing on its exchange.

So far, no company has used the new secondary listing rules to raise funds in Hong Kong.

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