Hong Kong is doing its best to make sure that the initial public bid of Alibaba Group Holding is a huge success which transforms the mega-sale of $12 billion into a hot item - if interested investors can get their hands on the stocks.
Firstly, Alibaba would provide just 2.6 percent of the deal to individual investors, a quarter of the allowance stated in the Hong Kong listing regulations and half of the 5 percent rate usually permitted for transactions of more than HK$10 billion ($1.3 billion).
Depending on the level of demand, the retail component may be raised to as much as 10 percent, although this is still well below the 50 percent needed for the most highly subscribed deals by the listing regulations.
Squeezing the retail deal may have the effect of increasing the perceived uncommon price of Alibaba stock, magnifying the hype about what may be the largest share selling in Hong Kong since 2010. For instance, with the same level of demand, an allocation that is barely covered at 10 percent would be subscribed four times at 2.5 percent.
Hong Kong Exchanges & Clearing Ltd. has done its best to satisfy Alibaba, adopting rules that allow dual-class stocks after a decade of resisting change - and losing New York's original $25 billion public offer in 2014. The term "waiver" occurs in the prospectus of Alibaba 80 times.
There's a lot of betting on a successful sale with Hong Kong's economy, and following the initial public offering, HKEX will be home to Alibaba and Tencent Holdings Ltd's two biggest technology companies in Asia. That could enable the companies to draw more tech players such as Grab Holdings Inc. and Gojek, Southeast Asian ride-hailing giants.
There are reasons to expect Hong Kong stock from Alibaba to do well. Many mainland Chinese shareholders would have their first chance to buy stocks of the most successful company in the world until Alibaba is included in the trading pipes that connect Hong Kong to the Shanghai and Shenzhen exchanges.
Capital controls prohibit Chinese investors from readily entering international stock markets, which ensures that only those with funds outside the mainland will exchange the U.S. shares of Alibaba. Yet Chinese technology firms also command higher valuations than overseas on local exchanges.
Alibaba is at the forefront of the virtual and retail markets in China, with its Taobao and Tmall platforms continuing to prosper as slowing demand encourages more people to look for online shopping.
