By Kane Wu and Scott Murdoch
HONGKONG (Reuters) – Alibaba Group’s <BABA.N> <9988.HK> Hong Kong shares made a solid debut on Tuesday, trading 6.9% higher than their issue price and at a small premium to pricing in New York after marking the world’s largest stock sale this year.
The Chinese e-commerce giant has raised at least $11.3 billion from the secondary listing, which has been seen as a vote of confidence in Hong Kong’s financial future amid six months of sometimes violent anti-government protests.
That amount could climb to as much as $12.9 billion if Alibaba chooses to exercise an over-allotment option within 30 days of the start of trade.
The funds raised will help Alibaba, the biggest company in Asia by market value and world’s seventh largest, invest more in a range of online services.
But analysts also note that the establishment of a base of investors in Hong Kong and China could function as a backup for the company should its shares be hit in New York amid the U.S.-China trade dispute.
In early afternoon trade, the shares were exchanging hands at HK$188.10. That compares with its issue price of HK$176 and a closing price for Alibaba’s ADS of $190.45 which would be equivalent to HK$186.3 a share as each ADS is worth eight Hong Kong shares.
The Hong Kong and New York stocks are fungible, which means investors can buy and sell the same shares on either exchange and that pricing on the exchanges are unlikely to diverge too far from each other.
The premium to New York reflects the willingness of investors in the city and Asia to take on the stock of a company they know well, market participants said. Expectations are also high that it will get a lift in valuation when it becomes eligible for trading in the Stock Connect that links Shanghai and Shenzhen with Hong Kong next June.
“There will be some upside for the company’s price in Hong Kong but I don’t think we will see the shares double or triple in a year,” said Geo Securities Chief Executive Francis Lun.
At Tuesday’s listing ceremony, CEO Daniel Zhang noted the Hong Kong debut had been a long time coming.
Alibaba had hoped to initially list in Hong Kong, but eventually chose New York for its record-breaking $25 billion initial public offering in 2014 after its unusual governance structure failed to win acceptance from Hong Kong regulators.
The loss of the listing triggered years of argument and consultations that resulted in rule changes last year.
“Thank you Hong Kong and thank you HKEX. Your reform and innovation of the capital markets in the past few years has made it possible for us to realise what we missed five years ago,” Zhang said at the listing ceremony.
The Hong Kong listing has surpassed other large stock sales this year, ranking ahead of Uber Technologies <UBER.N> $8.1 billion IPO and $5.7 billion IPO for Anheuser-Busch InBev’s <ABI.BR> Asian brewing business in Hong Kong.
In its prospectus, Alibaba said it would use the funds raised to increase its investment in online delivery and local services platform Ele.me and in online travel group Fliggy.
Alibaba also plans to spend more on developing Youku, one of the leading online video platforms in China.
Small retail investors were enthusiastic buyers of the deal, subscribing for 40 times the shares they were originally allotted and eventually taking 10% of the deal.
Alibaba is the fifth most-traded company in New York this year, averaging $2.6 billion a day, according to Refinitiv data. Market players said they did not expect Hong Kong turnover to be as robust due to higher stamp duty costs.
(Reporting by Kane Wu and Scott Murdoch; Editing by Edwina Gibbs)