Alibaba just hit another sales record on Monday’s Singles Day, the Chinese version of Black Friday in America. The company’s online platform logged transactions valued in excess of 38 billion dollars equivalent, confidently beating last year’s record of 30.8 billion and proving the China Cassandras wrong yet again. Domestic consumption is booming, and there is no two ways around it. Retail sales may have dipped into single-digit percentage growth numbers, but this is no testament of demand stagnating. It is a function of a higher base at worst.
So, this thing is on fire with regards to its bread-and-butter business – not to mention all other businesses that Alibaba is engaging in, such as the cloud, fintech, delivery services, you name them. It has fast been becoming a Kraken of a platform business, much like Amazon has in America, only with the advantage of 4 times a population that has only just begun going shopping. Hence, Alibaba’s gross merchandise value, or GMV, is already about 3 times Amazon’s.
Alibaba currently churns close to 20 billion in free cash flow per quarter and commands a cash pile of almost 60 billion. There is ample liquidity to build any business. Surprising maybe is that Alibaba is trading at a market capitalisation of inside 500 billion dollars, only more than half of Amazon’s. Its shares were listed at the NYSE over other contenders in 2014, in defiance of HKSE’s refusal to accept dual share classes and for the purpose of tapping the perceived deeper market with higher valuations.
But times have changed. Alibaba has grown into a much bigger company, and it may be time to diversify its investor base further. In the meantime, the stock exchange in Hong Kong abolished its stringent rules on share classes and has been the natural second choice for a listing. In addition, Alibaba’s management, and the Politburo in Beijing alike have had to smell the taste of the previously unthinkable, namely the Washington establishment to potentially threaten Chinese enterprises with de-listing them from NY.
In other words, there has been a slew of reasons why Alibaba would have eyed an HK-listing since before the summer. Unfortunately, the political situation in the former colony hasn’t become any more conducive for the project to materialise. The first delay came in June when it was announced that the company would revisit the listing after the summer. Then, it was October, and only at the end of last month, it transpired that a move would finally be made in November.
More granularity emerged when the protests ebbed off a little 2-3 weeks ago, and rumours made the rounds that a roadshow would commence right after Singles Day. We are still waiting for any commotion on that front, which probably is due to the heightened street violence since Friday and untypical into a workweek. And as particularly the Central district has literally been paralysed on both Monday and Tuesday, Hong Kong as a global financial center all of a sudden doesn’t look so good.
You can almost sense the frantic nature of back-to-back emergency meetings in Alibaba’s Hangzhou and Hong Kong offices. Naturally, the ever grimmer images emerging amid open violence across the city are not exactly an environment suited to celebrate a stock market listing. Alibaba has already trimmed its ambition for the size from initially 25 billion to 10-15 billion, but to postpone again or even cancel the entire project will not go down well and might have an effect on the company’s reputation.
There have been questions around why Alibaba would even want to raise more funds considering its comfortable liquidity position. Well, the prime target is the Chinese investor base that has so far largely been deprived of exposure and could acquire stock through the Connect mechanism. The second motivation might well be vanity. An offering in that range would make it the largest stock sale in Hong Kong this year and potentially the largest in the world, depending on Saudi Aramco.
Hong Kong itself has obviously been keen to have Alibaba list. It would elevate the stock exchange’s prominence with one swoop and bring badly needed business confidence back to the battered city, underpinning the characteristics of a free market spirit it has been so renowned for over decades, but that was before the place was finally going up in flames over the past two days.
And then there is what Beijing wants. It should be obvious that in the wake of the trade- and very possibly coming out-right economic war between China and America the leadership is keen on having its benchmark of an enterprise closer to home and within its sphere of influence. It is also a hedge against Washington’s belligerent talk of curtailing China from US capital flows. If a de-listing motion were to be pursued, Alibaba’s HK-listing would give it alternate credence for the international investor base.
All this depends, however, on where Hong Kong goes. As the police is on the record last night, the city is on the brink of “total breakdown”. Some may now think that Hong Kong may not recover from this shock and no longer be an eligible site for Alibaba. But the jury is still out on that. Hong Kong has time and again bounced back from deep troubles, and while it may never be the same Hong Kong as we have known and loved, it is not to say that it cannot re-blossom in a different nature.
The question is will Alibaba take that bet.
