“I think it would be better for them to be benchmarked against Amazon and those types of companies,” says one U.S. firm partner, though he adds that Alibaba, which had revenue of $4 billion last year, was a big enough company that U.S.–based tech investors and analysts would pay attention no matter where it lists.
If Alibaba were to list in Hong Kong, that might encourage other Chinese tech companies to list there instead of the United States. Of China’s two other leading Internet companies, Baidu Inc. is listed in the U.S. while Tencent Holdings Ltd. is in Hong Kong.
The Hong Kong Stock Exchange would no doubt like to be more of a destination for tech companies as well as restore its standing as an IPO capital more generally. From 2009 to 2011, Hong Kong was the world’s top destination for IPOs, but it fell to fourth place last year and is still well behind the U.S. so far this year.
An Alibaba listing by itself would push Hong Kong near the front of the pack again. “From the exchange’s perspective,” says the U.K. firm partner, “they haven’t had a listing of this size for quite a while.”
But while the Hong Kong exchange listing committee has strong incentives to let Alibaba have its way, it also faces strong pressure not to back down. Jeffrey Maddox, a Hong Kong partner of Cadwalader, Wickersham & Taft, explains that the Hong Kong economy’s historic domination by a handful of family-run conglomerates makes the issue of minority shareholder rights much more sensitive than in the U.S.
“I think the worry is that, if they allow Alibaba to have this structure, everybody else will want it too,” he says. “That would have a negative effect on Hong Kong as a world-class market.”
In the U.S., Maddox says, concerns about control are generally addressed by more disclosure. The threat of shareholder litigation and the role of lead director also act as strong checks on management.
The U.K. firm partner noted that the Hong Kong exchange had refused to budge last year when the owners of the British football team Manchester United had likewise sought to maintain control by issuing different classes of shares. The team ultimately listed in New York instead.
“It seems to be fairly sacrosanct principle” that all Hong Kong shareholders have equal rights, he says. “There is really a lot of concern about opening the floodgates.”