Chinese e-commerce giant Alibaba listed its shares in Hong Kong, raising up to US$13.4 billion. It’s IPO price was set at HK$176 and since its listing, the stock price has risen approximately 12% to HK$197.
I decided to make this article public given how I felt everyone could benefit from the questions that my subscribers have been asking me to clear the various uncertainties.
What is the conversion mechanism?
As stated by the prospectus by Alibaba, the Hong Kong-listed shares and the US-listed shares are fully convertible. This means that stock holders of the US-listed shares will be able to convert these shares to the HK-listed shares and vice versa. Also mentioned, for ordinary shares deposited in or received by CCASS, it would generally require 2 business days and the conversion will be subjected to transaction costs as well. For those interested in reading the Alibaba Offering Prospectus, you may find it here. With regards to the conversion, each US-listed share is equivalent to 8 Hong Kong-listed share.
Potential after Southbound and HSI inclusion
On 27th November 2019, the Hang Seng Index announced that Alibaba met the Fast Entry Rule of the Hang Seng Composite Index (HSCI) and that the company will be added to all the following indexes and sub-indexes:
- Hang Seng Composite Index (Hang Seng Composite Industry Index – Information Technology, Hang Seng Composite LargeCap Index, Hang Seng Composite LargeCap & MidCap Index)
- Hang Seng Internet & Information Technology Index
With this addition, Alibaba would make the stock eligible for the Southbound Connect inclusion from the Hong Kong side. That said, it would be subjected to the rules of the Southbound Connect, with one of them being that the stock has to be listed on the HKEx for at least 6 months (calendar days) and 20 (trading days). Therefore, Alibaba would have to be listed for approximately 6 months before it gets included into the Southbound Connect. This would allow China investor to finally partake in the growth of their homegrown company after it is included.
Use of listing proceeds
According to the company, having raised the proceeds from the Hong Kong listing, the company plans to use the proceeds as follows:
- Driving user growth and engagement. Alibaba will continue to expand and make available a broad range of products and services across their digital economy. For example, in addition to physical goods sold through their marketplaces, the company will continue to expand and promote their consumer service offering through their on-demand delivery and local services platform, Ele.me, and online travel platform, Fliggy. The company will also continue to build out their digital media and entertainment offerings through Youku, one of the leading online video platforms in China, and a number of other distribution and content platforms.
- Empowering businesses to facilitate digital transformation and improve operational efficiency. Alibaba will continue to implement New Retail initiatives, which entail continued investment in cloud computing technologies, supply chain management and sales and marketing systems. These efforts facilitate the integration of online and offline operations, improve operating efficiencies and create better consumer experiences for their enterprise customers and partners.
- Continuing to innovate. Alibaba will invest in order to continue to be an innovator in products and technology as well as an enabler of new business models. For example, it is important for the company to continue to invest in and develop new technologies, including machine learning technology and cloud computing technology, to support their own and their customers’ businesses.
Interested in receiving first hand and in-depth stock ideas? Check out our latest ValueScreener below, where we share monthly stock screeners and ideas!
The information provided by InvestingNook serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
Disclaimer: The Author has vested interest in Alibaba at the time of writing.