ALIBABA IPO - INVESTORS EXPECTING "KHUL JA SIM SIM!"
By Ruma Dubey
For many of us, Alibaba brought to mind an Arabic youth, who was blessed with crates of treasure when he stood in front of the cave and said the password, “khulja sim sim”.
And today, that Alibaba has nothing to do with this fable. This new fairy tale is about a Chinese boy who made it really big in life and his IPO, like everything else in China, aims to become the biggest IPO ever on offer on any world market. Just as we could not wrap our minds around a teenager coming across a cave full of treasures, this Alibaba from China is bigger than Groupon, Amazon and ebay, all three together. A company of this size and like the ‘old’ Alibaba, there is a feeling that you get the allotment and surely you are in for a windfall gain.
Alibaba’s IPO is indeed history in the making. The Alibaba group’s founder and Executive Chairman Jack Ma would have never expected this kind of frenzy for his IPO. The Americans, it seems are going ballistic. The response to the road show was so tremendous that the price range was hiked from the earlier $60 to $66 per share to $66 to $68 per share. As such even on the earlier price range, this was to be the largest IPO to be listed on the American bourses and post this price hike, at $68/share, Alibaba would raise more than $25 billion, with a market valuation of around $168 billion, which is larger than Amazon’s market cap of $150 million. Alibaba will take away the mantle from another Chinese company, Agricultural Bank of China which in 2010 raised $22.10 billion.
The IPO is expected to open sometime this week, expected to be priced on Thursday and will get listed on NYSE on Friday. In the US, there is a virtual clamor to get these shares by almost anyone and everyone but majority of them, are in for a short term listing gain. Not many are looking for long term investments; in fact it is not being looked as an investment but as a quick trading opportunity. Long term is not really on the agenda as for most trusting anything Chinese is simply difficult. Given the Governance in China, it would be difficult to assume that one fine day, the Chinese Govt might not clamp down on the site or bring in some rules which could make things difficult for Alibaba. And over and above all this, there is the big question of transparency in disclosures. Listing on NYSE might mean changes in this close guarded disclosures but one never knows. The rules of SEC listing demands inspection of its books if required; will Alibaba allow that? What is the assurance that things are as transparent as the rules of SEC demands?
And what about a level playing field? Be it an Indian company or a US company, the Chinese domestic markets do not allow listing. So we allow Chinese companies to amass huge money and compete with our very own companies but we ourselves do not get the same treatment. How right is this really?
Another reason why long term seems unlikely – most of the currently listed Chinese companies on US exchanges, have underperformed. A report from Wall Street Journal states that over the past five years, though gains from S&P 500 rose 150%, the US-listed Chinese stocks gave a return of less than 60%. This, many say, is a reflection of the investor psyche – unease over governance, lack of trust and threats of a protected market.
We have to give it to the lead managers and advertisers of Alibaba IPO – the marketing is simply fantastic as they have got the Americans in a frenzy, making it seem like almost buying an Apple iPhone. And many HNI Indians are also said to be interested in this IPO as RBI allows investment in foreign markets via remittances to the tune of Rs.75 lakh and this is done by placing orders with foreign partners when the IPO opens. Well, here Americans and Europeans are sure to get a priority and we Indians can wait for our own Alibaba – maybe Snapdeal or Flipkart?