October saw investors continue to pile into the initial share offerings of mainland Chinese firms in Hong Kong, anticipating quick gains in a stock market where valuations have soared to their highest level in five years. Chinese firms raised about US$30.5 billion in share sales during the month, 44% of the total amount issued from Asia.
Alibaba.com, China's largest trading B2B (business-to-business) website, which links mainland firms with customers worldwide, gained jaw-dropping demand for its initial public offering (IPO) on October 26, while Beijing land developer SOHO China also received huge levels of interest in its October 8 debut.
The deals mark a good month for investment banks. Asia (ex-Japan) ECM volume in October totalled US$20.7 billion from 164 deals, more than 70% higher than the previous month although 4% lower than October 2006.
Goldman Sachs continues to top the year-to-date volume ranking with an 11.2% share, and also took the plaudits for the month with a 16.3% share from eight deals valued at US$3.38 billion. Citi participated in more deals but missed out on the two big-ticket IPOs. Overall ECM transactions generated a healthy US$374 million in revenue, according to data provider Dealogic, after an insipid September.
Internet appeal
Alibaba.com attracted the greatest attention and has become one of the country's strongest international brand names.
Its decision to list in Hong Kong gained predictably strong demand. Hong Kong individuals' orders totalled HK$453 billion (US$58.2 billion), or 266 times the amount of shares initially set aside, despite the company raising the price of stock on offer by 13%, at the upper end of a marketed price range.
Alibaba.com ended up selling 858.9 million shares at HK$13.50 apiece, raising HK$11.6 billion. The transaction, which values the company at about US$8.8 billion, is the biggest internet IPO since Google.com debuted in 2004. Goldman Sachs, Morgan Stanley and Deutsche Bank acted as joint-bookrunners.
International institutions sought about HK$160 billion of shares, over 190 times the amount available after the retail portion was expanded, while about US$300 million worth of shares were reserved for eight corporate investors including Yahoo and Cisco Systems. As one person close to the deal says, "Hong Kong is a global marketplace. About 1,200 institutional investors applied for shares from Brazil to Japan."
Alibaba.com reported in its share sale document that profits this year would be at least Rmb622 million (US$83.9 million), up from Rmb219.9 million in 2006. The IPO price wasn't cheap – but that didn't seem to deter investors. The IPO values the company at almost 66 times projected 2008 earnings – compared with an average of about 21 times for companies quoted on Hong Kong's Hang Seng Index.
Chairman Jack Ma, a former English teacher, founded Alibaba in his apartment nine years ago with US$60,000, but subsequently used his friendship with Yahoo co-founder Jerry Yang to attract a US$1 billion investment. Yahoo! still has about a 40% stake in parent Alibaba.com Corp., while Softbank Corp., Japan's third-biggest mobile phone carrier, bought a stake in Alibaba in 2000 and now owns 29.3%.
By the end of October, Alibaba.com stock had almost doubled in grey market trading (which acts as an over-the-counter marketplace for equities that are about to be listed on a stock exchange), and when it started trading officially on the city's stock exchange on November 6 it enjoyed a 125% premium. The IPO may lure other local web businesses to sell stock in Hong Kong.