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Alibaba aims to raise up to $13.4bn in Hong Kong share sale

Chinese company weighs 5% discount as it gauges investor appetite, sources say

Alibaba's planned share sale in Hong Kong could be the biggest of the year, depending on the outcome of Saudi Aramco's IPO. (Photo by Yuki Kohara)

HONG KONG -- Alibaba Group Holding, the Chinese e-commerce leader, hopes to raise as much as $13.4 billion through a secondary share offering in Hong Kong, according to a term sheet seen by Nikkei Asian Review.

Asia's most valuable listed company gained regulatory approval for the listing on Tuesday. It began an investor road show on Wednesday, with final pricing scheduled for Nov. 20 and a debut on the Hong Kong exchange on Nov. 26, the term sheet showed. Alibaba raised $25 billion five years ago in the world's biggest initial public offering on the New York Stock Exchange.

The company plans to issue 500 million shares in Hong Kong, which equates to $11.7 billion based on Tuesday's closing price in the U.S., according to the term sheet. Alibaba also has the right to exercise an overallotment option, known as a greenshoe, of up to 75 million shares -- taking the transaction size to $13.4 billion.

One share in the U.S. will equate to eight in Hong Kong, and the company said it plans to use the proceeds for a "digital transformation" and other things. Based on the closing price of $186.97 in the U.S. on Tuesday, the shares sold in Hong Kong would be worth 182.89 Hong Kong dollars, or $23.33, the term sheet showed.

Alibaba began testing the appetite for the offer on Wednesday and has gauged investor interest at a discount of as much as 5% to the New-York traded stock, two people familiar with the transaction said. But based on the final level of interest, the discount may widen or narrow, a third person said.

The investors declined to say whether the offered discount was attractive, as they had yet to conclude their analysis of the value of Hong Kong-listed shares. Alibaba's share price has risen by one-third this year.

The company is considering the discount in order to lure investors given the mammoth size of the offering, as it may suck liquidity away from the broader market. One of the sources said that investors typically seek a discount in a secondary offering.

Alibaba's stock sale will be the largest in Hong Kong this year and potentially the largest worldwide, depending on the outcome of Saudi Aramco's initial public offering.

Beer maker Budweiser Brewing Co. APAC raised about $5 billion in Hong Kong in September for Asia's largest equity sale so far this year.

Alibaba's offering comes despite increasingly violent anti-government protests that have raged for 23 consecutive weeks in Hong Kong. Protesters blocked roads and train lines for a third day on Wednesday, with police warning that the city has been pushed to the "brink of a total breakdown."

Alibaba initially filed for a Hong Kong listing in June and planned to raise as much as $20 billion but delayed the sale in August amid the political unrest and weakening markets. The current offering will boost Hong Kong's standing as a financial center after it lost the fight for Alibaba's primary listing to New York.

So far this year, over $22 billion has been raised through IPOs on the city's stock exchange, just behind Nasdaq and NYSE, according to data compiled by Refinitiv.

Analysts say Alibaba's prime motivation behind the Hong Kong listing is to make its shares more accessible to Chinese investors, in line with Beijing's push for Chinese companies to look more toward their home market.

A Hong Kong listing would also give Alibaba some insurance against the risk it could be delisted in New York. Officials in the Trump administration and members of Congress have been discussing proposals that could directly or indirectly force out Chinese companies.

Credit Suisse and CICC are leading the share sale, with Citigroup and JPMorgan Chase also taking roles. More banks are expected to be involved. Representatives from Credit Suisse, Citi and JPMorgan declined to comment. CICC was yet to respond to an email seeking comment. Alibaba did not immediately comment. The Hong Kong Stock Exchange also declined to comment on the listing approval.

Additional reporting by Coco Liu in Hong Kong.

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