Why Alibaba bailed on a Hong
Kong IPO
REUTERS | March 19, 2014 10:19 AM ET

Nelson Ching/BloombergThe number of client inquiries about the Alibaba IPO is around a quarter of what it was for Facebook Inc. at this stage of the process and about half of what it was for Twitter Inc., according to TD
Ameritrade

After a year of waiting, the man running what could be the biggest-ever technology
IPO finally lost patience with Hong Kong.
Joe Tsai, the Alibaba Group Holding executive in charge of plans for the highly anticipated deal, only abandoned hope of a Hong Kong listing in the last few weeks, according to people familiar with the matter. The company’s shareholding structure, giving senior managers sway over board appointments, would not pass muster with local regulators.
The final straw was the snail’s pace of a public consultation process of reviewing local listing rules on which Alibaba had pinned its hopes, the people said. That delay, coupled with a rush of Alibaba rivals seeking to tap the frothy U.S. tech market, forced the company’s hand in the end, the people said.
Last Sunday, after nearly a year of talks with Hong Kong regulators and stock exchange officials, Alibaba said it will list shares in the United States in a deal expected to exceed Facebook Inc’s $16 billion offering in 2012.
“Alibaba realized this was not a battle that they could have won within the time frame they were looking to float the company,” said Keith Pogson, managing partner for financial services at consulting firm EY in Hong Kong. “So they decided to find a home that was more accommodating with such structures.”

Alibaba’s choice is a blow to Hong Kong’s financial industry, in terms of lost prestige, fees and trading volumes.
The absence of a large, dynamic tech company will sting the Hong Kong exchange as it tries to diversify its publicly traded stocks away from Greater China financial and property companies, bolstering its status as a global financial centre.
Hong Kong’s loss is the U.S. financial industry’s gain. The deal has the potential to bring in about $300 million in advisory fees alone for the banks involved, based on an estimated 1.75 percent commission.
The saga pitted a Chinese tech juggernaut and its financial advisors against securities officials guarding rigid shareholding rules meant to protect retail investor interests with a one share-one vote guarantee, in a city where family-run businesses and tycoons hold heavy influence.
“It’s a shame that Hong Kong lost the deal, but we lost the deal for good reasons,” said EY’s Pogson. “So we should congratulate the Hong Kong regulators for sticking to their guns on values, for showing that Hong Kong is a robust market where these kind of issues do matter and people care about investor protection.”
Alibaba had held out hope that a review of Hong Kong’s shareholding rules would keep the door open for a listing in the city, the people familiar said.
But the public consultation moved slowly, with Hong Kong’s Securities and Futures
Commission (SFC) pushing back against the stock exchange’s original draft proposals for a raft of rule changes. The SFC was adamant that the proposed changes to the city’s listing rules should not be influenced by Alibaba’s hopes for a Hong Kong listing, the people familiar said.
Alibaba declined to comment on why it decided to list in the United States.
The original plan to list late in 2013 had already gone by the wayside last year in part because of SFC opposition to Alibaba’s unique corporate structure. Under Alibaba’s statutes, the company’s partners are able to nominate and control the board – a challenge to the one share-one vote standard applied in Hong Kong.
While Alibaba waited for Hong Kong regulators to make a decision, Tsai and company co-founder Jack Ma could see that not only were the stocks of U.S. tech giants like Facebook and Google Inc surging, but that smaller Chinese Internet companies such as JD.com and Weibo were forging ahead with their