Alibaba Group Holding Ltd. and the fortunes of the sleeping dragon rose almost together and as China’s economy surged ahead so did the fortunes of the company and it is at the threshold of a historic U.S. initial public offering that may also claim the global record.
Alibaba seeks a valuation of $162.7 billion which is bigger than 95 percent of the Standard & Poor’s 500 Index. Alibaba will be the third most valuable company which will be traded in the US. The other two are Google and Facebook. As per the September 5th regulatory filings, the issue could raise $21.1 billion.
Analysts had in July put the value of the company at $187 billion and this will give the company some breathing space to hike the IPO price as it builds demand during its meetings with its fund managers. Analysts also felt that Alibaba could lower its valuation and it will avoid a repeat of the Facebook fiasco. The experts had pegged the price at $154 billion, after applying a discount.
Facebook had made big noises and had a price tag of $104 billion at the time of its IPO in May 2012. It went to lose half its value with the investors skeptical about the slowing growth and the company’s mobile strategy. It has however made a decent recovery.
The e-commerce market is growing and Alibaba IPO is coming at this time. Investors will have to tread carefully and weigh the risks before investing in the Hangzhou-based company. Alibaba has a towering presence in the internet, comparable to eBay Inc. (eBAY) and Amazon.com Inc. It also has in place a governance arrangement that keeps insiders in control as well as an ownership structure, which could face objections from the Chinese government.
Yahoo! Inc. (YHOO) and selling stockholders owns more than 22 percent of the company and Chairman Jack Ma and Vice Chairman Joe Tsai are planning to sell 320.1 million American depositary shares for $60 to $66 apiece. These shares total a 13 percent stake. The stock will be listed New York Stock Exchange and can be identified by the symbol BABA.
Chairman Jack Ma said in the company’s presentation, “We believe one thing, today is difficult, tomorrow is more difficult, but the day after tomorrow is beautiful. So we have to work very hard in order to survive the long journey.”
Tsai is selling 4.25 million shares which mean he could pocket $280 million if the shares were priced at the top-end. Ma will sell 12.75 million shares, earning as much as $841 million.
Visa Inc.’s $19.7 billion IPO in 2008 was the biggest U.S. initial offering to date and Alibaba’s sale could exceed that. Taking into account an overallotment option, Alibaba could raise $24.3 billion. This is $2.2 billion more than the global record which is held by Agricultural Bank of China which was able to collect $22.1 billion in sales in both Hong Kong and Shanghai in 2010.
The road show is scheduled for tomorrow in New York and executives will later travel to Boston and Baltimore, before heading west to San Francisco. There is a meeting scheduled between the executives and investors in London and Hong Kong. Alibaba is scheduled to price its IPO on Sept. 18, according to data compiled by Bloomberg. The shares would start trading the next day.