Alibaba.com

Alibaba.com prepares to open public share offering to investors
Posted: 04 November 2007 2344 hrs

HONG KONG : After weeks of hype and with demand exceeding the share allocation more than 150-fold, China's largest-ever Internet IPO will finally list Tuesday, illustrating the insatiable demand for Chinese equities.

Alibaba.com, the online business-to-business marketplace, will be the biggest Internet initial public offering since Google in 2004 when it appears on the Hong Kong market.

Investors have been attracted by the company's rare potential to tap both the mainland's thriving manufacturing and Internet sectors.

Further encouraged by the scorching performance of the Hong Kong bourse in recent months, retail investors queued up to get their hands on the firm's prospectus.

The company said on Sunday it was on track to raise the 1.5 billion US dollars it was aiming for after setting its offer price at 13.50 Hong Kong dollars. But the reported scale of the rush for shares has left experienced onlookers flabbergasted.

Demand for the 375-million-Hong-Kong-dollar retail tranche of shares was 58 billion Hong Kong dollars, while the institutional tranche -- which saw global giants such as Cisco and American Insurance Group vying for a slice of the company -- attracted 160 billion Hong Kong dollars of orders for just 1 billion Hong Kong dollars of shares.

The huge inflow of funds into Hong Kong from hopeful investors across the globe has even been cited as a reason for the intervention by the de facto central bank to protect the Hong Kong dollar.

The Hong Kong Monetary Authority made the move for the first time in two years because the excessive liquidity heading into the territory, much of it aiming to buy Alibaba shares, was threatening the local currency's peg to the US dollar.

Tony Nafte, a senior economist at CLSA, said the demand is simply a reflection of the wider picture of huge liquidity from the mainland, which China's government has tried to mop up by allowing it to flow to Hong Kong.

"The success (of any IPO) is based on the same principles as the strength of Hong Kong's current market -- (the feeling that) that money flowing in from China, or at least the perception of money heading in from China, will keep pushing the market up," he said.

"In this kind of atmosphere, if you put in an IPO, it will do fantastically."

Howard Gorges, vice chairman for South China Securities, says the listing also shows that Hong Kong is now capable of competing with the Nasdaq and the Dow Jones in terms of attracting investment.

"In the past Wall Street was the place that such listings would go to, now Hong Kong can give a company like Alibaba the same big reception," he said.

"Sophisticated investors, who can understand Alibaba's model, are here, and we have seen that any quality IPO lately has been very highly over-subscribed in Hong Kong."

Alibaba.com, which is part of the wider Alibaba Group, and their backers believe that their business model is robust.

The company's success has been built on providing small and medium size (SME) Chinese manufacturers with a way to sell their products both within China's huge internal market and increasingly across the world, using an English-language version of the site.

In their launch prospectus they said there are 42 million SMEs in China in 2006. Internet use has risen 23.4 percent annually since 2002, with 137 million users in 2006, the report added.

Financial performance has also been impressive. Revenue has grown from 359.4 million yuan in 2004 to 1,363.9 million in 2006, although the listing will still value the company at around 100 times its projected earnings for this year.

Such figures are impressive for a business that started just seven years ago in founder Jack Ma's apartment. At the time he had just 18 employees, now he has around 4,400 working for Alibaba.com, based in Hangzhou, near Shanghai.

But the huge numbers involved have also raised the fear that the listing could mark the high point of a bubble.

"The party is going to come to a bit of a halt. So it is possible that somebody is going to get caught," added Nafte. - AFP/ac