There are reports that Alibaba has been unable to finalize its listing location due to the fact that currently, Jack Ma and other board members only hold 10.38% of the company's actual equity, far less than SoftBank's 36.7% and Yahoo!'s 24%.
If Alibaba chooses to list in Hong Kong, it may fail to repurchase shares from Yahoo! due to an insufficient valuation. Additionally, according to the Hong Kong Stock Exchange rules, all shares must have equal voting rights once listed. This could result in Jack Ma losing control over Alibaba.
An industry insider pointed out that the Hong Kong Stock Exchange has a pre-listing inquiry mechanism, and Alibaba has already discussed with the Listing Promotion Department but cannot disclose the details or progress of these discussions.
In response, relevant personnel from Alibaba reiterated to *The Economic Information Daily* that the timing and location of the company's listing have not been determined, making it inappropriate to comment. The CEO of the Hong Kong Stock Exchange, Charles Li, publicly stated that the Hong Kong listing rule system is continuously improving. The Hong Kong Stock Exchange welcomes Alibaba to list in Hong Kong, and both parties are discussing, but there is no news to announce yet.
Even though everything is still undecided, mainland brokers have already begun intensive research on Alibaba's "shadow stocks" in anticipation of sharing in the profits.
Control becomes the core factor
According to *The Economic Information Daily*, based on the stock repurchase agreement signed between Yahoo! and Alibaba last year, Alibaba's IPO must meet certain prerequisites such as raising at least $3 billion in cash and the issuance price exceeding 1.1 times the repurchase price from last year to continue repurchasing the remaining shares held by Yahoo!.
All this might be a crucial reason for Alibaba’s frequent efforts this year to increase its IPO valuation.
Market speculation suggests that valuation and board control issues may be key factors in Alibaba's hesitation between listing in the U.S. or Hong Kong.
Public data shows that as of the end of 2011, Jack Ma personally held about 7.43% of the shares, and together with the other seven management members, they held 10.38%, without disclosing whether these were common or preferred shares. On the other hand, Yahoo! and SoftBank, the two major foreign shareholders, each held approximately 24% and 36.7%, significantly higher than Jack Ma's holdings. Due to the four-person board structure where Alibaba management holds two seats, and Yahoo! and SoftBank each hold one seat, Jack Ma has maintained control over the years.
According to Hong Kong Stock Exchange regulations, companies listed in Hong Kong can only have a single share structure, meaning all shares have the same voting rights. Therefore, many companies with Dual Class Structures choose to list in the U.S. to retain control.
Thus, some analysts believe that if Alibaba chooses to list in Hong Kong and fails to repurchase shares from Yahoo! due to an insufficient valuation, combined with the aforementioned Hong Kong Stock Exchange regulations, Jack Ma might lose control over Alibaba.
However, an unnamed legal expert told *The Economic Information Daily*: "There are many companies with dual share structures, and Alibaba is not the first case. Although the possibility of Hong Kong regulators giving the green light is slim, if there is an agreement among shareholders regarding control, the regulators will respect it." He believes that it is unlikely that Alibaba would abandon the Hong Kong market for this reason. "This statement might just be an attempt to muddy the waters before Alibaba's listing."
Another CEO of a soon-to-be-listed company also told reporters that the possibility of Alibaba choosing Hong Kong for its listing is very high. "Alibaba was previously listed in Hong Kong and is familiar with the policies and regulations. Moreover, American regulators strictly monitor information, which could pose a greater challenge to Alibaba's business model."
Brokerage Research on Shadow Stocks
Regarding market speculation, Charles Li pointed out that the Hong Kong listing rule system is continuously improving. The Hong Kong Stock Exchange welcomes and hopes for Alibaba's listing in Hong Kong, but the decision lies with Alibaba. Discussions are ongoing, and there is no news to announce yet.
The latest official message from Alibaba comes from the new CEO, Jonathan Lu. On July 9, he met with the media in Hong Kong and stated that the funds raised from the IPO will mainly be used for mergers and acquisitions. As for when and where Alibaba will list, the final decision rests with Jack Ma, Chairman of Alibaba's Board.
Despite various speculations, this does not hinder the capital market's high attention and enthusiasm for Alibaba.
A senior securities research person revealed to *The Economic Information Daily* that multiple brokerages and fund industry professionals have recently started intensive research on A-share listed companies related to Alibaba, including StarNet, Huace Testing, Neimenggu Junzheng, etc.
He anticipates that as Alibaba's IPO process progresses, four types of listed companies—industrial chain support, business model extension, potential acquisition targets, and Alibaba Group's shareholders—will become continuous theme investment catalysts.
However, he admitted that investors are indifferent to Alibaba's listing location; what they care about is the final pricing. "Even if Alibaba chooses to list in the U.S., its valuation could reach around $800 billion based on eBay, and Alibaba's business model has even greater growth potential. Its comprehensive strategic layout should enjoy a higher premium."
This valuation reference is based on Alibaba's strong profitability. Recently, its major shareholder, Yahoo! US, disclosed in its financial report that Alibaba Group's net profit for the first quarter of 2013 was $669 million, growing 200% compared to $220 million last year. Following the fourth quarter of last year, this marks Alibaba's second consecutive fiscal quarter where its net profit exceeded Tencent's.
Meanwhile, Tencent's profit during the same period was 4.071 billion yuan (approximately $649.4 million), increasing 17.3% from the previous quarter. Another internet giant, Baidu, reported a net profit of approximately $330 million in the first quarter.
In fact, overseas-listed internet companies over the past six months have been wildly pursued by various funds, with NetEase's stock price rising nearly 40% in half a year.
Investment banking insiders pointed out that since an IPO generally takes about three to five months to complete, if Alibaba chooses to list in Hong Kong, the next few weeks will be the last window for Alibaba to submit its application to the Hong Kong Stock Exchange. If Alibaba fails to submit the application, it may opt to list in the U.S. or delay its listing time.