Alibaba confirms huge Hong Kong public listing worth at least $13bn

Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. (File/AFP)
Updated 15 November 2019

Alibaba confirms huge Hong Kong public listing worth at least $13bn

  • Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade
  • Alibaba Chief Executive Officer said the group wanted to participate in Hong Kong’s future

HONG KONG: Chinese technology giant Alibaba on Friday confirmed plans to list in Hong Kong in what it called a $13 billion vote of confidence in the turbulent city’s markets and a step forward in its plans to go global.
The enormous IPO, which Hong Kong had lobbied for, will come as a boost for authorities wrestling with pro-democracy protests that have tarnished the financial hub’s image for order and security and hammered its stock market.
Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. The number eight is considered auspicious in China.
Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade after insurance giant AIA raised $20.5 billion in 2010.
Alibaba had planned to list in the summer but called it off owing to the city’s long-running pro-democracy protests and the China-US trade war. The US and China are now working on sealing a partial trade deal.
Daniel Zhang, Alibaba Chief Executive Officer, said the group wanted to “contribute, in our small way, and participate in the future of Hong Kong.”
“During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” he said.
The firm’s shares are already traded in New York. A second listing in Hong Kong is expected to curry favor with Beijing, which has sought to encourage its current and future big tech firms to list nearer to home after the loss of companies such as Baidu to Wall Street.
In the statement, Zhang said that when Alibaba went public in 2014 it “missed out on Hong Kong with regret.”
Mainland authorities have also stepped up moves to attract such listings, including launching a new technology board in Shanghai in July.
The listing comes after the city’s exchange tweaked the rules to allow double listings, while Chief Executive Carrie Lam had also been pushing Alibaba’s billionaire founder Jack Ma to sell shares in the city.
“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said.
It has long been expected to launch a multibillion-dollar stock listing in Hong Kong but appeared to postpone the offering because of political and economic turmoil.
Hong Kong’s key Hang Seng Index rose 0.48 percent in morning trading following the announcement
Chinese shoppers set new records for spending on Monday’s annual 24-hour “Singles’ Day” buying spree, despite an economic slowdown in the country and the worries over the US trade war.
It said consumers spent $38.3 billion on its platforms over that stretch, up 26 percent from the previous all-time high mark set last year.
Alibaba also said it saw record amounts of cross-border sales, underlining its plans to expand globally.
“Globalization is the future of Alibaba Group. We firmly believe the marriage of digital technology and commerce will bring about unprecedented change that will not be limited by borders,” Zhang said.


Coronavirus puts clutch of countries in junk rating danger zone

Updated 04 April 2020

Coronavirus puts clutch of countries in junk rating danger zone

LONDON: Being stripped of one’s investment grade credit rating is a chastening moment for any government, but the crushing economic impact of the coronavirus, and for some the oil market crash, are putting at least half a dozen countries at risk.

South Africa, long a likely victim, was demoted to “junk” by Moody’s on Friday, and now that the virus has tipped it over the edge, the focus is on who might be next.

There is no shortage of candidates.

Deep recessions and the cost of bolstering health care systems and bailing out firms is sending debt levels soaring from Italy to India, where ratings are already on the low rungs of investment grade.

S&P Global’s mass scalping of oil producers last week has left Colombia just one notch from junk and Mexico, with its $130 billion bond market, just two cuts away.

“This a very expensive fiscal exercise,” fund manager Eaton Vance’s head of country research Marshall Stocker, said of the epidemic. “In every way it is going to challenge debt ratings.”

Becoming a ‘fallen angel’ — as a downgrade to junk is known in rating agency parlance — can set off a wave of problems.

It automatically excludes the country’s bonds from certain high-profile investment indexes which means conservative funds — active managers as well as passive “trackers” — are no longer able to buy and sell them. It can cut the bonds’ value as collateral in central bank funding operations too.

Credit default swaps (CDS), which can be used to insure against debt problems, currently foresee Mexico, India, Indonesia and Colombia all being demoted to junk, according to an S&P Capital model called the Market Derived Signal Score.

The model also has Italy showing as one cut away, rather than the two that its BBB S&P rating actually represents, and A- grade Saudi Arabia too as being only one step away rather than four.

Morgan Stanley doesn’t expect any more moves into junk this year, but its strategist Simon Waever points to cuts to junk being priced into bond markets for both Colombia and Mexico, noting that the anticipation of a move to non-investment grade tends to do more damage than the actual cut.

Brazil was estimated to have seen over $20 billion yanked out of its markets when it lost investment grade in 2015.

“The majority of the (bond yield) spread widening happens before the downgrade. Then when the downgrade comes there is a bit more but then it stops and starts to recover.

“For Mexico and Colombia they (bond spreads) are already pricing these downgrades coming,” Waever said.

Morgan Stanley’s European analysts have also pinpointed Italy as another potential downgrade risk if rating agencies turn more cautious.

S&P and Fitch both have negative outlooks on their BBB Italy ratings. S&P has warned of a 10 percent euro zone economic contraction if lockdowns last, though it has also stressed the importance to Italy of the European Central Bank’s bond buying support.

S&P’s former head of sovereign ratings, Moritz Kraemer, who led the firm’s mass downgrades during the euro zone debt crisis, has come up with some stark calculations.

Aggregate government debt in the euro zone shot up from 65 percent to 90 percent of GDP between 2007 and 2012, and sovereign ratings fell around three notches on average.

Kraemer sees euro zone debt topping 100 percent this year and Italy, which has been hit the hardest by COVID-19 and is also Europe’s largest debtor, faring worse.

A “10/10” scenario in which an economy contracts 10 percent this year and its budget deficit worsens by 10 percentage points of GDP, would see Italy’s debt spike from 130 percent to 158 percent this year and to 167 percent by the end of 2022.

If the same happened in France, its debt rate would be 135 percent, Portugal’s 144 percent and Spain’s 129 percent.

“The deterioration of public finances is likely to turn out worse now than during the euro area crisis,” Kraemer said.

“With the backdrop of the devastating scale of the human tragedy and the outsized economic repercussions threatening Italy, the scenario of the sovereign slipping into speculative grade can no longer be easily dismissed.”