Alibaba is "95 percent certain" to choose New York over Hong Kong for its initial public offering, expected to be one of the largest in history, according to people close to the process.
The company is no longer "even engaged" with the Hong Kong exchange, according to one person familiar with the matter, while another said a New York listing was now "95 percent certain". A third person familiar with the situation said: "I can categorically tell you that Alibaba will not list in Hong Kong."
Alibaba, China's largest ecommerce company, had initially planned to list in Hong Kong, but fell foul of the city's listing rules due to its proposal to control appointments to its board.
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It publicly abandoned plans to list in Hong Kong last year, suggesting it would look to the U.S.. However, behind the scenes it was still looking at a potential Hong Kong IPO and hoping for a rule change that would accommodate its board structure. The company tried to rekindle talks with the exchange this year using different lawyers, but those talks have come to nothing.
Hong Kong authorities are drawing up a public consultation on whether the city ought to change its rules and allow different control structures through share classes or board arrangements, in order to attract tech companies.
However, the regulator is far from convinced there is any reason to alter its rules, and there are significant voices within both the stock exchange and the Listing Committee – which rules on IPO candidates – against a change.
"The basic issue is: would anyone be advocating a very significant potential change to the way in which shareholder rights are balanced if it were not for the potential competition, particularly from the U.S.?" said one person close to the Hong Kong authorities. "If that [competition] didn't exist, would anyone take a view that some companies have such special characteristics that they're treated differently?"
Joe Tsai, Alibaba's executive vice chairman, told Reuters on Thursday that the company would not ditch its partnership structure to list in Hong Kong, but said he respected the city's efforts to maintain "the integrity of the market".
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Bankers say Alibaba has a number of reasons not to wait for the results of the consultation process, which could drag on for months. The company has made a string of acquisitions recently, and having a listed entity may help to lower its cost of capital for such activity. It may also be keen to complete the deal at the current valuation, having seen expectations rise rapidly.
Stock prices of Alibaba's biggest listed shareholders Yahoo and Softbank have risen 65 percent and 110 percent, respectively, in the past year, in part due to their stakes in the company.
While estimates of the size of the listing have varied, the most recent valuations placed on Alibaba by private trades in its convertible bonds are in the region of $120 billion. Depending on the listing location and the amount raised at IPO, Alibaba's offering could yet eclipse Visa's $18 billion raising as the largest ever in the U.S..
Missing out on Alibaba will be a blow for Asian investment bankers, who had been hoping the deal would improve liquidity and sentiment in the Hong Kong market. However, some have expressed doubts over whether the city had the capacity to handle such a large deal.