Will Hong Kong Say Open Sesame To Alibaba?

Featured Image

Last year, the Hong Kong Stock Exchange lost out on the chance to host Alibaba’s IPO. The online, China-based sales platform took its public offering over to the New York Stock Exchange due to the more favorable atmosphere. Hong Kong failed to change a ruling concerning what type of company structures are allowed to be traded on its exchange before Jack Ma and his e-commerce company jumped ship. Hong Kong’s policy has been that one share equals one vote. This democratic structure is ironically not present in New York, ergo Alibaba executives chose to keep their power while accepting public investment. But now that very ruling may well be eliminated in order to keep more Chinese businesses listed in Hong Kong.

The Underlying Problem

Although the HSKE has hosted many Chinese IPO’s, it has maintained a hardline concerning the democracy of shares. A situation where one share equals one vote is not just a game of playing fair in Hong Kong. With large families and Chinese government-owned firms holding many of the successful companies prior to their IPO’s, the lack of stock classes has empowered the average shareholder in Hong Kong in ways that would be otherwise impossible.

This strong democratic vibe seems to wavering under the pressure caused by China’s bigger, better version of Amazon. For many company owners, the concept of maintaining control while still going public is why they rely on weighted shares. If a company still needs to make quick and decisive moves, weighted shares are the best option of those in charge because they won’t need to hold a shareholder meeting every time a good opportunity comes knocking.

The good news for Alibaba is that Hong Kong is not only reconsidering  its ruling on weighted stock options, but has also allowed Alibaba shares to be traded in Hong Kong. That means, before even settling the debate on whether or not to allow dual-class shares, the Hong Kong Stock Exchange has already made an exception for Alibaba. These secondary offerings have opened up Alibaba to investment capital both on Hong Kong and in mainland China. Alibaba isn’t the only company that could benefit from such a move. NASDAQ heavy hitter and China’s equivalent of Google, Baidu, could see significant domestic investment dollars poor in if the HKSE changes its stance on dual-class stocks.

Too Little, Too Late

For the foreseeable future, the HKSE could be making this change as a complete gamble. Allowing dual or multiclass share offerings would currently benefit the companies with those structures while offering the exchange little in return. Alibaba’s IPO may have generated an astounding $25 billion, but that doesn’t mean the HKSE will see another Alibaba anytime soon.

The Magic Lamp for Tech

For capital-heavy tech companies like Alibaba, the news that they can have secondary offerings in Hong Kong is a victory. Alibaba, Baidu, and JD.com are three of China’s biggest tech-based companies and all three of them are on the NYSE. The question for the HKSE is whether they should gamble on new Chinese tech companies listing their IPO in Hong Kong in the future if they begin allowing weighted shares. As far as Alibaba is concerned, the money is coming in and the growth just keeps on coming.