In a completely unexpected move for a giant $400 billion company that is supposedly generating billions of dollars in cash per year, Chinese online retail darling Alibaba is considering raising another $20 billion by also listing its shares on the Hong Kong stock exchange, according to Reuters.
The deal would be the biggest follow-up share sale over the last seven years globally and would give the company a supposed "war chest" to continue investing in technology. The final size of Alibaba’s listing has yet to be confirmed, with some sources claiming it will net the company between $10 billion and $15 billion, instead of $20 billion.
The company is already working with financial advisors on the offering and is aiming to file an application confidentially in Hong Kong as early as the second half of 2019. Some people believe the move is in response to the current trade war.
Still, the company's capital raise plans raised more questions than provided answers. Some were outright skeptical. "Why would a company allegedly making around $12 billion per year want to dilute itself by selling more stock? (Just asking)," Stanphyl Capital's Mark Spiegel Tweeted on Sunday.
Short seller Jim Chanos, who has been a vocal critic of Alibaba for years, said on Twitter "I've been reliably lectured by BABA bulls about how profitable and cash flow positive this company is. Nice timing, too, as BABA insiders continue to sell."
Alibaba Weighs Raising $20 Billion Through A Second Listing | Huh. I’ve been reliably lectured by $BABA bulls about how profitable and cash flow positive this company is. Nice timing, too, as $BABA insiders continue to sell. @DeepThroatIPO https://t.co/9xarRq7zic— Diogenes (@WallStCynic) May 27, 2019
However, the idea of preparing a dual listing as a result of the trade war isn't totally out of left field. Last week, Chinese chip maker SMIC said it was delisting its New York Stock Exchange shares in favor of a Hong Kong listing, in what many said was a response to the trade war.
Hao Hong, head of research at broker BOCOM International said: “For Chinese companies listed in the United States, one has to prepare a contingency plan. Given most of the Alibaba investors are in Asia, it makes sense to come closer to your home base and give investors an option to trade in the same time zone.”
The listing overseas will give mainland investors direct access to the company via the stock connect trading link between Hong Kong, Shanghai and Shenzhen. It would also supposedly be giving the the $400 billion company an "extra pocket of liquidity", though we are not sure how profound of a difference $20 billion could make for the supposedly cash flush company.
Steven Leung, a director at UOB Kay Hian in Hong Kong said: “With such a big market cap, it will enhance the daily trading volume [and] attract more funds into the market - that’s exciting many investors.”
One analyst in Hong Kong said the company doesn’t need the cash, but that the listing can help improve the company's access to loans from Asian banks. “It means closer access to Chinese investors, and maybe Chinese investors are more bullish than the global investors in Alibaba,” the analyst added.
The timing of the listing is indeed interesting. CEO and Founder Jack Ma is set to step down as chairman in September. Ma has already said in interviews about his departure: “I won’t come back, because I don’t feel like I have left.”
Another analyst in Hong Kong, supposedly one with a Buy rating, concluded: “Alibaba has strong and growing free cash flow, but they’re also pursuing cash-hungry new initiatives."