Is it time for Alibaba to go home?
Is Alibaba planning to list in China?
The New York-listed shares of Chinese online tech giant Alibaba have soared, after reports that it is planning a secondary listing in China.
The Wall Street Journal reported that Alibaba, which owns Inkstone, was exploring ways to allow investors in mainland China to trade its shares.
The additional offering could happen as early as this summer, it reported.
Alibaba, which scored the biggest US initial public offering of all time in 2014 when it listed on the New York Stock Exchange, declined to confirm the report, but said it was open to listing in China.
“Since our IPO in the US, we have stated that if regulations allow, we would consider a listing in China,” a spokesperson at Alibaba told the South China Morning Post, which it owns.
China currently does not allow companies listed offshore, like Alibaba and fellow tech giant Baidu, to float on its domestic stock markets of Shanghai and Shenzhen.
But the rules may be changing.
Yan Qingmin, the vice president of the China Securities Regulatory Commission, told reporters yesterday that China will soon start a pilot program to allow homegrown companies already listed overseas to be traded on domestic bourses in some fashion.
This is likely to encourage more Chinese tech companies listed overseas to return home, at least partially.
“Listing in China would normally mean a higher price,” Fraser Howie, an independent analyst and co-author of Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise, told Inkstone.
“But the domestic markets have not always been favorable to companies wanting to do something different.”
China’s stock markets in Shanghai and Shenzhen have a combined average daily turnover of $70 billion.
About $13 billion changes hands every day in the Hong Kong stock market, which has entirely different rules and governance systems than the Shanghai and Shenzhen bourses.
A company of Alibaba’s size, where $2.8 billion worth of shares changed hands every day in 2017, would make up about a fifth of Hong Kong’s daily turnover, or one-twelfth of Shanghai’s.
Analysts say listing at home would give companies access to a huge additional pool of capital, but it also means getting entangled in China’s capital control and stringent regulations – reasons why some of them went overseas in the first place.
Start-up companies, for example, are only allowed to list on China’s growth enterprise market if they meet certain requirements, such as continuously generating profit for two years, and grossing no less than $1.58 million.
That’s why many ambitious, growth-oriented companies have chosen to go public overseas.
At the moment, the government is trying to lure these “unicorns” – tech companies worth more than $1 billion – back to its domestic market.
It’s also promised further reforms of its financial system.
“It is pressing time for China to embrace the return of unicorn companies,” said He Xiao, chief analyst for think tank Caixin CEBM. “Once they grow stronger with more mature core technologies and business models, they can be a new driving force for our economy at home.”
Howie welcomes the reforms underway in China, but he thinks the government is doing far too much.
“I would be happier to see the market take a greater role within a framework of good regulation,” he said. “Instead, we get patchy regulation and a state interfering when something happens it does not like.”
Still, the rules barring companies like Alibaba from listing in China haven’t been changed.
Until that happens, it remains difficult for Chinese unicorns to list at home.