FUND RAISING: Alibaba, Legend Spotlight Rising Hong Kong
Bottom line: Legend Group’s IPO should get a solid reception, and Alibaba’s separately listed drug and film units should also perform well over the next few years as the Hong Kong stock exchange gains popularity for China tech firms.
A pair of stories today are casting a spotlight on Hong Kong and its future potential as a hotbed for Chinese tech listings. One of those involves e-commerce leader Alibaba (NYSE: BABA), which wanted to make its record-breaking IPO in Hong Kong last year but ultimately chose New York due to ownership issues. The second involves Legend Holdings, parent of PC giant Lenovo (HKEx: 992), and one of China’s oldest and most respected private tech companies.
The first news bit has Alibaba injecting the pharmacy business from its popular Tmall online shopping mall into its Hong Kong-listed Alibaba Health (HKEx: 241) unit. The second has Legend Holdings making its first public filing for a long-planned listing in Hong Kong that should happen later this year, including some of the first official financials we’ve seen for the IPO.
Both Alibaba and Legend have mixed feelings about the Hong Kong stock exchange. Alibaba previously listed its B2B Alibaba.com online marketplace in Hong Kong in 2007, but later privatized the company after the stock languished due to slowing growth. Despite that, founder Jack Ma was quite adamant about wanting to go to Hong Kong to list the entire company last year. But he ultimately chose New York when Hong Kong stock officials refused to allow him to use an unusual ownership structure for the company.
Now the latest reports show that Alibaba is slowly rebuilding a stable of major publicly listed-companies in Hong Kong, with the HK$19.4 billion ($2.5 billion) injection of Tmall’s pharmaceutical business into Alibaba Health. (English article; Chinese article) The move provided a huge lift for Alibaba Health, whose shares shot up 81 percent when trading resumed following a 4 week suspension. Following the injection, Alibaba’s stake in Alibaba Health will rise to 53 percent from a previous 38 percent, giving it control of the company.
The deal looks quite similar to another reorganization that saw Alibaba last week propose to fold several of its entertainment-related assets into its Alibaba Pictures (HKEx: 1060) unit, which it bought last year and is also a Hong Kong-listed company. The 2 deals have created 2 relatively sizable companies, with Alibaba Health and Alibaba Pictures now worth about $12 billion and $10 billion, respectively. I quite like Alibaba’s strategy of separating its various businesses into different publicly traded units, as it should give investors better and more focused options for buying into the company.
Next let’s look at Legend, whose IPO has been a work in progress for the last couple of years. Founder Liu Chuanzhi said his original preference was for a listing on one of China’s domestic stock exchanges. But he changed that plan last year and went to Hong Kong due to a long backlog of listing candidates in China after a prolonged IPO freeze.
Legend’s first major public filing for its IPO doesn’t give any fund-raising targets, but other reports have indicated the amount will be in the $2-$3 billion range and the listing will come around July. (Chinese article) This initial public filing mostly contains ownership and financial information. Legend’s profit has grown at a relatively healthy annualized rate of about 35 percent over the last 2 years, reaching 4.1 billion yuan ($670 million) last year, though revenue has grown much more slowly.
This flurry of tech-related offerings in Hong Kong should help to boost a market that’s better known for companies from more traditional industries like manufacturing and financial services. The market’s appeal should also get a boost as more China-based investors can buy Hong Kong stocks through a scheme last year linking the 2 markets. With the building momentum behind it, I would expect to see an improved performance in the future for these 2 Alibaba units, the Legend IPO and other tech related stocks in Hong Kong going forward.
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