China e-commerce trading site, Alibaba, has had to change tactics and reconsider a listing for its much awaited IPO in the US, rather than closer to home in Hong Kong, it has been reported. News of the US listing consideration followed the Hong Kong stock exchange’s unwillingness to support the company’s ‘unusual management structure.
Alibaba’s management structure is however supported by its largest shareholders, Yahoo and Japan-based Softbank. The show of support came a day after a senior Alibaba Group executive sharply criticized the southern Chinese city’s stock exchange for being too inflexible in discussions about a share sale that had been expected to raise up to $15bn.
Talks between senior executives at Alibaba and the Hong Kong stock exchange broke down when the e-commerce company would not be granted an exception within the exchange’s listing rules. According to analysts the Hong Kong IPO was looking to raise $15bn, but a New York listing could far exceed that figure to $100bn, said a Washington Post report.
In September of this year, Alibaba completed the initial repurchase of shares from Yahoo! and restructured its relationship with the Silicon Valley company in transactions valued at approximately $7.6bn. The closing followed the May 20, 2012 announcement by Alibaba Group and Yahoo! of a comprehensive plan for Yahoo! to reduce its stake in Alibaba Group in stages over time and a series of agreements to implement the restructuring of the on-going relationship between the two companies.
The initial repurchase of shares, which represented one-half of Yahoo!’s 40% stake in Alibaba Group on a fully diluted basis, was valued at approximately $7.1bn. Of this, Yahoo! received about $6.3bn in cash and $800m in preference shares in Alibaba Group. Concurrent with the initial repurchase, Alibaba Group paid Yahoo! a one-time cash payment of $550m in connection with the amendment of their existing technology and intellectual property license agreement. Under the terms of the agreement with Yahoo!, Alibaba Group has the right to repurchase one-half of Yahoo!’s remaining stake upon a qualifying initial public offering in the future. Yahoo! originally acquired its stake in Alibaba Group in 2005 in exchange for $1bn and sale of its Yahoo! China business to Alibaba Group.
Alibaba Group financed the transaction with a mixture of cash on hand, senior debt and the issuance of convertible preference and ordinary shares. The financing package is the largest ever private financing for a private sector Chinese company, and the largest non-LBO private financing for a technology company globally. The new equity financing was completed at a valuation of approximately $40bn.
Eight international banks – Australia and New Zealand Banking Group, Barclays Bank, Citi, Credit Suisse, DBS Bank, Deutsche Bank, Mizuho Corporate Bank and Morgan Stanley – provided $1bn of senior debt financing for the transaction, while China Development Bank was the sole Chinese bank that provided a parallel senior debt facility of $1bn.
The issuance of ordinary shares was subscribed by lead investors CIC International Co., and two of China’s leading private equity firms, Boyu Capital and CITIC Capital, as well as CDB Capital, the equity investment arm of China Development Bank. In addition, existing shareholders including Silver Lake, DST Global and Temasek participated by increasing their investment in the company. The convertible preference shares were successfully placed with global institutional investors from Asia, Europe and the United States.