Alibaba will not pursue Hong Kong listing
Alibaba Group has decided not to pursue a Hong Kong IPO after efforts to persuade the exchange to accommodate a shareholding structure that allows management to retain control of the business met with a lukewarm response. It is unclear where the listing – which could reach $15 billion – will now take place, although a US bourse is widely expected.
"We've decided not to list in Hong Kong," Alibaba CEO Jonathan Lu told Reuters. "The Hong Kong authorities need time to study this corporate governance structure [for knowledge-based companies]."
Alibaba, which is backed by a string of private equity firms following an employee liquidity event in 2011 and a partial buyback from Yahoo in 2012 - wanted to use a bespoke ownership structure whereby 28 partners, mainly senior executives, would be able to nominate a majority of the board members despite only holding a combined post-listing equity stake of around 10%.
"This is not a mere profit sharing mechanism, nor is it a vehicle of power to exert greater control over the company; rather, it is a system that provides a driving force within the company," Jack Ma, Alibaba's founder, said in an email to the Hong Kong Stock Exchange (HKEx) and the Securities and Futures Commission.
HKEx CEO Charles Li responded that he was open to change, provided discussions aren't rushed.
Hong Kong operates under a "one share, one vote" system that favors majority shareholders. While Alibaba's proposal differs from the dual class share structure commonly used by technology companies in the US, it has broadly the same effect, allowing the founders of Google and Facebook, for example, to retain board control despite diluting their shareholdings below a control threshold.
US exchanges have proved popular with Chinese internet companies, not only for the flexibility on ownership but also because the disclosure-based system allows listings to proceed even when they are unprofitable or bear substantial legal and financial risk.
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