Alibaba Listing Would Brighten a Hong Kong Darkened by Mainland's Clouds

Hong Kong stocks breathed a little life on Monday. At one point the Hang Seng benchmark was up more than 1%, outperforming other Asia indexes, although it closed up 0.4%. Still, investors will take it. They'll take a proposed listing by e-commerce giant Alibaba Group Holding , too, which appears to have taken a step closer. It would likely be one of the top three stock offerings in Hong Kong's history. So to see it progressing is a positive step at a time other companies are backing away from Hong Kong's markets. The city is exhausted after more than a month of protests that have finally forced the postponement of an extremely unpopular proposed law to allow suspects to be sent from Hong Kong to China for trial. Needless to say, Chinese courts, with their forced confessions, show trials and executions, do not have the best reputation. The Hang Seng index is down 9.5% since early May, and the bill has turned into a political embarrassment for Chinese President Xi Jinping. Beijing is terrified that protests, such as yesterday's march, which featured almost 2 million people or close to 30% of Hong Kong's population, will spill over into China. Xi must also decide what to do with Hong Kong's politically crippled leader, Carrie Lam. It's the last thing he needs as China contends with U.S. antagonism over the trade war. Alibaba Group Holding filed on Monday for a one-to-eight stock split ahead of a Hong Kong listing that reportedly could raise $20 billion. The company has picked Credit Suisse and the Goldman Sachs of China, China International Capital Corp., better known as CICC, to lead the stock sale, according to Bloomberg, while Reuters says it has filed confidentially with the Hong Kong exchange. The Hangzhou-based company has declined to comment on the topic. Alibaba's share price is a hefty $159.91 per share. The split, which goes to a shareholder vote on July 15, would increase the number of shares available and reduce the price, the company noted, giving it more flexibility in raising capital and issuing shares. Alibaba originally wanted to list in Hong Kong back in 2014. But it grew frustrated by the Hong Kong market's rules outlawing two-tier share structures. So it went public in New York, its $25 billion offering become the largest initial public offering so far. A $20 billion secondary offering in Hong Kong would come close to rivaling the $22.1 billion raised by the Agricultural Bank of China in 2010, when it listed in both Hong Kong and Shanghai. The Industrial and Commercial Bank of China , or ICBC, raised US$21.9 billion in 2006, also with a dual Hong Kong/Shanghai listing. Hong Kong's rules were eminently sensible, preventing the founders of tech companies from taking in public money without surrendering control. But Hong Kong has since caved, and now allows two classes of shares with different voting rights. That allows tech tycoons to remain emperors of their company, with few checks on their power. Suddenly Alibaba is keen to get back in. A cluster of top executives hold all the voting rights in Alibaba, allowing them to pick the majority of the board. In other words, they can do whatever they want to do, and you, Mr. and Mrs. Shareholder, can't do a damn thing about it. Apparently, they want to see if Hong Kongers will hand over their money with the same alacrity as U.S. investors. Still, the deal would be a boost at a testing time. Logistics property developer ESR Cayman has delayed what would have been Hong Kong's biggest initial public offering so far this year. The $1.4 billion offering would have valued the warehouse builder, backed by private equity firm Warburg Pincus, at $6.2 billion at the top of its indicative range. But it said last Thursday that the offering would not proceed, blaming current market conditions. Word is, the offering would have priced closer to the low end of its range than the high, since the company set a pretty aggressive valuation. The poor market in general made that impossible to reach. But Hong Kong's street protests didn't exactly help matters, either. Another company, Goldin Financial Holdings, walked away from its winning bid to purchase a $1.4 billion plot of land in Hong Kong, as I explained last week. It lost a $3.2 million deposit in the process, explicitly blaming the occurrence of recent social contradiction and economic instability in Hong Kong. This current tumult boiled over with a march on April 28 that drew 130,000 people. Then, more than a million people attended an even bigger demonstration on June 9, the Sunday before last. The following Wednesday, a crowd of mostly students managed to get a reading of the bill canceled by surrounding the legislature, in protests that turned violent when the police used tear gas, pepper spray and rubber bullets against the crowd. Almost 2 million people marched yesterday, yet again. That's even though Hong Kong's stubborn chief executive, Carrie Lam, did a complete about-turn and suspended the extradition bill on Saturday. She claims it will be resuscitated when the time is right, so that the administration can do more explanation work with the public. The public has apparently had enough explanation. Sadly, an as-yet unidentified man died after unfurling a protest banner on the Pacific Place shopping mall, and falling several floors when firemen tried to grab him. Hong Kongers have been saddened by that, and incensed by Lam's press conferences, during which she has refused to step down, refused to apologize, acted haughty, described protesters as spoiled children, and suggested that she knows better than anybody else what's good for Hong Kong. She finally did apologize. But no one believes she meant it. No one believes she knows what's best for Hong Kong, either. Beijing may wait a suitable period before quietly asking her to step down. If you're a market watcher, the Alibaba listing would be a vote of confidence in Hong Kong. It could do with one.

Alibaba Listing Would Brighten a Hong Kong Darkened by Mainland's Clouds

Alibaba Group appears to be prepping a Hong Kong stock offering that could be worth $20 billion, and give a vote of confidence at a time of great tumult.

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