Alibaba to List in New York, May Force Hong Kong to Amend IPO Rules

It’s official. China’s e-commerce giant Alibaba Group will list on the New York Stock Exchange instead of the Hong Kong bourse. The high-profile initial public offering may raise as much as US$15 billion, in the same league as Facebook’s US$16-billion IPO in 2012.
On 16 March, Alibaba released a statement on its corporate website about its decision “to commence the process of an initial public offering in the United States.” The listing “will make us a more global company and enhance the company’s transparency,” said Alibaba, adding that it would, if circumstances permit, “extend our public status in the China capital market in order to share our growth with the people of China.”
Alibaba had considered listing in Hong Kong, but wanted the stock exchange to amend its rules to allow a dual-class share structure that would let Alibaba’s 28 partners, including founder Jack Ma, nominate an alternate board member if the shareholders reject a candidate to the board. The US permits dual shares, but Hong Kong and Singapore have a ‘one shareholder, one vote’ policy.
“We would not bend our existing rules just for one applicant,” Charles Li, HKEx CEO, told the South China Morning Post. But he indicated that the rules may eventually be changed. “Alibaba’s proposal [to allow dual-class shares] has propelled the management to review our operating model,” he said. “The eventual loss may be even larger if we don’t undergo reforms.”
The issue of dual shares has been a notable issue among relatively new technology companies, whose founders desire to continue exerting control even after selling the majority of shares to minority shareholders. But some corporate governance advocates in the US have criticized dual shares as inherently unfair.
Alibaba's decision is an unfortunate reflection on U.S. listing requirements, Charles Elson, a law professor who chairs The Weinberg Center for Corporate Governance at the University of Delaware, told FierceCFO, CFO Innovation’s sister publication in the US. “We should have higher standards here,” Elson said in an interview.
Ann Yerger, Executive Director of the Council of Institutional Investors, noted that “dual-class stock is created with short-term thinking in mind, because this is really about entrenching leaders – those taking a company public – at the expense of the company’s long term.”
But it is unlikely that the US will make a U-turn on dual shares. What seems more likely is that it is Hong Kong that will do so. Alibaba appears to hold the door open to a secondary listing there.

“We wish to thank those in Hong Kong who have supported Alibaba Group,” it said in the statement. “We respect the viewpoints and policies of Hong Kong and will continue to pay close attention to and support the process of innovation and development of Hong Kong.”


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