China’s Alibaba Group Holding Limited (NYSE:BABA) has been rumored for some time to be considering a listing in Hong Kong. Those rumors heated up at the start of the week and the prospect sent Alibaba stock up over 4% over the next few days, before giving back those gains, including a 1.6% slide yesterday. However, last night news broke that Alibaba has now filed for that listing, which could raise as much as $20 billion for the company. With that information now making headlines, BABA stock has risen over 1% since yesterday’s close.
Alibaba Stock Gets Boost on News of Hong Kong Listing
Bloomberg published a report on Monday that Chinese e-commerce giant Alibaba was close to filing for a listing in Hong Kong. The primary listing for Alibaba stock would remain the New York Stock Exchange, but the secondary stock offering would open Alibaba up to mainland Chinese investors and could put as much as $20 billion in Alibaba’s coffers.
That cash would come in handy for the company. Like Amazon (NASDAQ:AMZN), Alibaba is involved in much more than e-commerce, including search engines, electronic payment, artificial intelligence, cloud computing, music streaming, smart speakers and a recent effort to push its technology into cars. These ventures require significant R&D costs, and infrastructure investment. Having access to additional cash would also open the doors to acquisitions. BABA stock has also been at risk from the escalating trade war between the U.S. and China. A Hong Kong listing would help to insulate the company should the situation worsen.
Reuters broke the news early this morning that Alibaba has filed confidentially for its Hong Kong listing. The unnamed sources said that China International Credit Corp and Credit Suisse Group AG (NYSE:CS) will be the lead banks. Alibaba representatives declined a request to comment, but the news has had a positive effect on Alibaba stock in pre-market trading. BABA stock price has been topping $161.70 after closing at $160.04 on Wednesday.
Potential Downside for U.S. Markets
Listing Alibaba stock in Hong Kong has obvious advantages for the company, for Hong Kong, and for Chinese investors. But there is risk in this development for U.S. markets.
Alibaba’s $25 billion 2014 IPO remains the largest in history. The New York Stock Exchange described the September 19, 2014 listing of BABA stock as a “moment emblematic of the truly global nature of capital markets.” That global nature has been under strain with the deteriorating relationship between the U.S. and China.
Having Alibaba listed in Hong Kong sets a precedent for other Chinese companies.
A company of this size choosing to list in Hong King sends the message that Chinese companies don’t necessarily need to seek an American IPO to succeed. Making the situation worse, current tensions between China and the U.S. have Chinese companies looking for ways to reduce their exposure to American investment. Other Chinese stocks that are traded in the U.S. could take the same route as BABA stock and also look to Hong Kong for a listing.
And as Bloomberg points out, ultimately there could come a point where Chinese investors in Alibaba stock elevate that Hong Kong listing to sharing primary status with New York — and potentially threatening the New York listing altogether.
According to Bloomberg, there are currently 173 Chinese companies with primary listings on the New York Stock Exchange or NASDAQ, with a total market cap of $758 billion. If the Alibaba Hong Kong listing is a success as expected, those numbers may not grow, or in a worst case scenario could begin to shrink, locking U.S. investors out of some of the most exciting tech companies to come out of China.
But that’s all hypothetical. And in the meantime, the prospect of raising $20 billion in a Hong Kong listing is helping to lift Alibaba stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.