Alibaba homecoming silver lining for beleaguered marketBusiness | Ivan Tong 3 Jun 2019
Every cloud has a silver lining, as the saying goes, but where's the silver lining in Hong Kong's stock market which has been deeply ravaged by the Sino-US trade war?
Well, the Chinese multinational conglomerate Alibaba owned by Jack Ma is reportedly preparing to return to Hong Kong for a secondary listing later this year.
Alibaba's top brass have been tight-lipped so far, neither confirming nor explaining the reasons behind the reported move to list in Hong Kong.
However, given that the trade war is in full swing and US-listed China stocks have been hammered recently, offshore-listed China stocks coming to Hong Kong for a secondary, dual or even primary listing becomes a Plan B that's worth actively studying.
No matter what you call it - a trade, tariff or technology war - the battle between the world's two biggest economies is very real and dangerous as China and America increasingly target each other's companies and businesses.
FedEx is suspected of "wrongful delivery of Huawei's parcels" to the United States, which is in serious violation of delivery regulations, according to the State Post Bureau of China.
Beijing has opened a probe into the violation and corresponding sanctions are expected to follow shortly. This shows that the trade war is rapidly accelerating to include enterprises and this must send shivers down the spines of their top bosses and owners.
Meanwhile, Hong Kong Exchanges and Clearing (0388) chief executive Charles Li Xiaojia is probably the happiest "third party" about the news of Alibaba's homecoming.
Li said he would welcomes Alibaba's "return home" and believed the move would be beneficial to Alibaba and not cause it any harm.
Alibaba's return to Hong Kong, if it comes true, will help boost the stock market and the HKEX would be a winner.
But Li's joy is believed to be more out of personal reasons.
Alibaba sought to list in Hong Kong in 2013 but despite Li's best efforts behind the scenes, it was blocked by the Securities and Futures Commission as the exchange did not allow shares with "weighted-voting rights" to list at the time. Alibaba was then forced to go to the United States to go public.
Now the law has been amended to allow dual-class shares, and if Alibaba were to return it would a vindication for Li and his determined courtship to woo the e-commerce giant back to the city.
Alibaba's second listing can raise about US$20 billion (HK$1.56 trillion) and if all goes well it could be listed in the second half of the year.
The secondary listing - which is different from a dual or primary listing - will not make Alibaba a blue-chip stock but it can't be ruled out whether Alibaba will look at options besides a secondary listing.
Some commentators believe that fund-raising is not the reason why Alibaba is returning to Hong Kong, but they are only half correct.
It is definitely a good thing for a company to gain US$20 billion of capital, and Alibaba also needs funds to expand its development on the global scene.
There is no harm in having more money, so even if raising funds is not the sole reason for Alibaba's return, it definitely will be one of them.
Alibaba currently has ample liquidity with US$28.31 billion in cash and cash equivalents as of March 31 and this is expected to increase by US$22 billion during the 2019 financial year.
It's possible there are both financial and political reasons behind Alibaba's move.
Alibaba's shares have nosedived by 23.54 percent from a high of HK$195.21 on May 3 to US$149.26 last Friday, faring even worse than other US-listed China stocks.
Part of the reason for the plunge may be related to the news that it intends to return to Hong Kong for a secondary listing. Even if it is merely a secondary listing, it will indirectly hurt Ali's share price, not to mention the escalating trade war, which will trigger more major fund managers to sell US-listed China stocks.
Alibaba's return to Hong Kong would not necessarily good for technology stocks since the local market already has a "king" in Tencent (0700).
If Alibaba were to list, the exchange become a court ruled by two "kings." Prospects for Hong Kong stocks would be unpredictable with investors more focused on buying and selling these major stocks, and this would have a dilutive effect on other tech stocks.
Ivan Tong is Editor in Chief of The Standard