This article is from the WeChat public account: Guotai Junan Securities Research (gtjaresearch) , author: Guotai Junan IPO team, thematic map from: vision China
Ali is back.
On November 26, today, Alibaba will return to the Hong Kong Stock Exchange to ring the bell twice.
After today, Ali will be the first Mainland Internet company to be listed in both Hong Kong and the United States. The Hong Kong Stock Exchange will also become the largest stock exchange in China following the New York Stock Exchange.
Delisting from the Hong Kong Stock Exchange in 2012, leaving the NYSE in 2014, and returning to the Hong Kong Stock Exchange in 2019. From the perspective of Guotai Junan’s IPO team, Ali’s seven-year journey home is a new capital market in China The history of changes in the issuance system.
Ali’s secondary listing will also become a new milestone in the history of new stock issuance in China’s capital market.
01 Alibaba Market Road
In 2014, because of “disagreements”, Alibaba was not able to list on the Hong Kong Stock Exchange and was forced to leave the United States.
The main reason behind the failure of Alibaba and the Hong Kong Stock Exchange is the issue of “same rights but different rights.”
Different rights in the same stock refers to a special AB-type equity structure.
Under this system, even shareholders who hold the same number of shares, people who own A shares (often the founding team of an enterprise) , which is always more important than someone who owns B shares (outside investors) The main purpose of decision-making power for major events is to enable the founders of the company to retain sufficient control over the company’s affairs after the company goes public.
This two-tiered equity structure is common in the US market, but at the same time, it is also blamed by those who advocate good corporate governance-a large amount of power is concentrated in the hands of a few people, which is an extremely undemocratic approach to corporate governance.
Due to the strict requirements of the Hong Kong Stock Exchange for “same shares and same rights” at the time, Ali was insured to control the company.
In fact, Ali has a special attachment to the issue of corporate control.
In the early years of fighting for control with Yahoo, Ali management had faced the risk of being out of power. Since then, since July 2010, the “Lakeside Partner System” has been implemented within Alibaba Group, and this innovative system has been mentioned in the materials submitted by Alibaba to the Hong Kong Securities Regulatory Commission.
Although Ma Yun insists that the partnership system is different from the dual equity structure, Hong Kong Stock Exchange Listing Rule 8.11 states that the new applicant’s share capital must not include stocks with unequal equity and rights, unless the exchange agrees.
After discussion, the Hong Kong Securities Regulatory Commission rejected Alibaba’s application for listing. The reason given was that it would harm the interests of small and medium shareholders, and if it was an exception for Ali, it would damage the rigor of the law.
As a result, on October 11, 2013, Alibaba Group CEO Lu Zhaoxi publicly stated that he had given up listing in Hong Kong. On March 16, the following year, Ali announced that the IPO address was determined to be the United States.
On September 19, 2014, Alibaba successfully listed on the New York Stock Exchange with an issue price of US $ 68 and a total fundraising of US $ 21.8 billion. It fully raised over US $ 25.03 billion after subscription, setting the largest IPO record in history.
The opening price of Alibaba on the day of listing was US $ 92.7, a 36.32% increase from the issue price, and the market value calculated at the opening price reached approximately US $ 228.5 billion.
During Ali’s listing in the US, the stock price reached a maximum of US $ 211.7. As of November 19, Alibaba’s stock price was US $ 185.25, an increase of 172.4% from the issue price of US $ 68, and the total market value reached US $ 495.2 billion.
The loss of Ali has also become a major regret for the Hong Kong Stock Exchange for many years.
02Change
Missing Ali’s regret has once become the biggest driving force for the reform of the Hong Kong Stock Exchange.
In 2018, the Hong Kong Stock Exchange re-amended the Listing Rules to allow companies with different voting rights structures to list on the Hong Kong Stock Exchange. The rules came into effect on April 30 of that year, which is the biggest change in the Hong Kong Stock Exchange in 25 years. .
The first to catch up with this dividend is the mainland Internet giant Xiaomi and Meituan.
Under the more open environment of Hong Kong’s capital market, Xiaomi and Meituan have been listed in Hong Kong in the form of “same rights but different rights”, and formally incorporated into the Hong Kong Stock Connect on October 28, 2019.
There were a lot of speculations at the time, whether Ali, JD.com and New Oriental would return. Several major Internet companies expressed positive feedback and said they would wait for the right time.
In June 2019, it has been reported that Alibaba will submit an application for listing in Hong Kong within a few weeks, and chose CICC and Credit Suisse to lead the Hong Kong share issuance. This issuance may raise up to 20 billion US dollars.
Alibaba’s official response to this is “no comment”, but the industry’s call for Ali’s return to Hong Kong stocks is growing.
A few months later, on November 13th, Alibaba Group formally submitted the preliminary prospectus document to the Hong Kong Stock Exchange, which means that Ali’s return to Hong Kong listing has begun.
On November 15th, Ali began accepting investors’ subscriptions. On November 20th, it was priced at HK $ 176 per share, and the financing scale of the over-allotment amounted to HK $ 101.2 billion.
On November 19th, Ali ended the institutional subscription 10 hours in advance, and the international subscription order exceeded the multiple by 3 to 4 times.
At the same time, Alibaba confirms that its ADR will continue to be listed and traded on the New York Stock Exchange. Each ADR represents eight ordinary shares. The Hong Kong listed shares and the ADR listed on the New York Stock Exchange will be interchangeable.
If this goal is successfully achieved, Ali will become the second largest IPO transaction in the history of Hong Kong shares after AIA.
03 Ali’s Choice
Alibaba has a secondary listing in Hong Kong and can choose to issue HDR or issue ordinary shares. However, due to the current lack of trading in the HDR market of the Hong Kong Stock ExchangeEasy function, eventually Ali chose to issue common shares.
In fact, H shares + ADR is the mainstream model for overseas listed companies’ IPOs in Hong Kong. Since 1980, a total of 17 companies have chosen to list in the US and Hong Kong in the form of “H shares + ADR”, including HSBC Holdings, China Eastern Airlines, China Mobile, and China Life.
From the perspective of the issuance model, there are three main types: simultaneous issuance of Hong Kong common shares and ADR; issuance of ADR first followed by issue of Hong Kong ordinary shares; issuance of Hong Kong common shares before ADR. At present, only HSBC Holdings is the first to issue Hong Kong common shares and then issue ADR, Huaneng Power International, Prudential, and BeiGene-B are to issue ADR first and then issue Hong Kong common shares. The others are issued at the same time.
As of November 20, 2019, the average market value of Hong Kong stocks of 17 companies listed on H shares + ADR exceeded 350 billion Hong Kong dollars, of which 6 companies ranked in the top 20 of Hong Kong stocks. From the perspective of operating indicators, they all showed relatively high Stable operating capabilities.
Alibaba finally abandoned the current HDR in the market and chose to issue Hong Kong common stock, which proves that the tolerance of the Greater China capital market is gradually increasing, which is also the inevitable result of the drastic reform of the Hong Kong Stock Exchange since last year result.
04 Science and Technology Board Catchers
While the Hong Kong Stock Exchange has strengthened its tolerance for enterprises, the domestic market has also been continuously opened to broaden financing channels for enterprises.
After 2015, the return of China’s stocks to the domestic capital market has accelerated. In that year alone, more than 30 companies in China’s stocks plan to return.
The general return path is “privatization + demolition of VIE structure + backdoor listing”. Companies such as Focus Media, Giant Network, Perfect Storm, Qihoo 360 have achieved domestic listing in this way, but the overall process is more complicated. Regulatory audits are also more stringent.
In 2019, the S & T board of the Shanghai Stock Exchange was launched, providing another possibility for the return of China’s stocks. China stocks can either choose to be listed in China after privatization, or they can spin off their independent companies. Listed from Unicorn to Science and Technology Board.
On March 1, 2019, the CSRC issued the “Continuous Supervision Measures for Listed Companies on the Science and Technology Innovation Board (Trial)”, in which Article 31 states: “A listed company that has reached a certain size may comply with laws and regulations, China Relevant regulations of the Securities and Futures Commission and the stock exchangeIndependent and qualified subsidiaries are listed on the science and technology board “.
Combining the spin-off and listing policies, the system is gradually improving
Data source: CSRC, Guotai Junan Securities Research
China Universe has many unicorns. Alibaba’s Ant Financial, Alibaba Cloud, Cainiao Network, etc. may be split and listed.
Chinese stocks among the four U.S. stocks selected in the table below: Ali, Baidu, JD.com, and NetEase. They are all large Internet companies that meet the requirements of national innovative companies and have a large volume of (The market value is more than US $ 30 billion) , they have many unicorns with valuations greater than US $ 1 billion, which may be split and listed in China.
China Unicorn may spin off and list unicorns
Data source: Wind, Guotai Junan Securities