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China's Alibaba files for US IPO

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Leslie Picker

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E-commerce giant: Jack Ma founded Alibaba in 1999.

E-commerce giant: Jack Ma founded Alibaba in 1999. Photo: Reuters

Alibaba, which rode China's emergence as an economic superpower over the past 15 years to become a massive online marketplace for everything from forks to forklifts, has filed for what could become the largest US initial public offering ever.

Founded by former English teacher Jack Ma, 49, in a Hangzhou apartment, Alibaba started with a few dozen items for sale. The company might raise as much as $US20 billion ($21.4 billion), topping a $US19.65 billion offering by Visa in 2008, data compiled by Bloomberg shows.

A worker walks past the Alibaba headquarters on the outskirts of Hangzhou, Zhejiang province, China.

A worker walks past the Alibaba headquarters on the outskirts of Hangzhou, Zhejiang province, China. Photo: Reuters

Alibaba didn't specify the number or price of shares it will offer or what valuation it will seek. Those details will be provided closer to the actual sale. The filing has a $US1 billion placeholder amount, which is used to calculate registration fees and will change.

Alibaba's market value is estimated at $US168 billion, bigger than 95 per cent of the Standard & Poor's 500 Index – and the most valuable internet company after Google, according to Bloomberg data. The company is looking to sell about a 12 per cent stake, sources familiar with the matter have said, which would make the offering about $US20 billion based on the estimated value.

The IPO will be a boon for Yahoo, which plans to sell part of its 22.6 per cent stake in Alibaba.

Investor enthusiasm

With today's US Securities and Exchange Commission filing, Alibaba begins a process that will take several months before it becomes a publicly traded company – and involves revisions to the document and meetings with investors during a formal roadshow, after which a price for the shares will be set. The company also must decide whether to list its shares on the New York Stock Exchange or the Nasdaq.

Alibaba is approaching US markets riding a wave of investor enthusiasm for Chinese technology and internet companies. Eight such companies filed for $US2.3 billion worth of IPOs in the first quarter, while 26 already-listed companies from web-portal Baidu to security-software maker Qihoo 360 Technology have gained a median of 60 per cent in the past 12 months, according to Bloomberg data.

Ma started Alibaba, an online marketplace for Chinese companies, in 1999 and its valuation has surged – from a few billion dollars when Yahoo acquired its stake in 2005, to $US32 billion when Silver Lake Management, Temasek and DST Global bought in six years later, to $US153 billion in a February survey of analysts. That average estimate jumped again by 10 per cent in a survey conducted last month.

Taobao, Tmall

Alibaba now provides various marketplaces for buyers and sellers, as well as services that help them conduct their businesses. Taobao Marketplace, founded in 2003, enables millions of individuals and small businesses to sell products. Tmall.com operates as a virtual shopping centre, with retailers and brands offering products. Alibaba's other businesses include Juhuasuan, a flash-sales model, and eTao, a shopping search engine.

In the three months through December, profit more than doubled to $US1.35 billion, as revenue surged 66 per cent to $US3.06 billion, according to a Yahoo investor presentation on April 15.

Growth risks

Alibaba's businesses could be affected if China's economic growth continues to cool. Increasing competition for Taobao and Tmall has been squeezing profit margins for merchants, which could discourage them from using the platform.

The company's growth may peak along with its expansion in China, Francis Lun, the chief executive of Geo Securities said last month. Growing the business outside of China won't be as easy, he said, and one potential growth area has been blocked by regulators.

China's central bank in March blocked the issue of virtual credit cards, in a move to tighten restrictions on online financial products. Alibaba's Alipay.com affiliate was among those planning to offer those cards.

Alibaba's US filing comes after it was unable to persuade Hong Kong regulators to change rules to give Ma and other executives a unique way to control the company. In Tuesday's filing, Alibaba outlined a governance structure that allows a group of partners to nominate a majority of its board, with shareholders able to vote on the nominees.

Alibaba intends to use the proceeds it receives from the offering for general corporate purposes.

Yahoo's exit

Yahoo has been gradually exiting its stake in Alibaba, which bought back 20 per cent of its shares from Yahoo in 2012, in a deal that valued the Chinese company at $US35 billion. Sunnyvale, California-based Yahoo is poised to pare 40 per cent of its remaining Alibaba stake in the IPO. The money could give CEO Marissa Mayer a chance to accelerate deal making or do stock buybacks.

Visa raised $US19.65 billion in 2008, while Facebook – which initially filed for an IPO with a $US5 billion placeholder amount – raised $US16.01 billion. Among Chinese companies to tap US markets, the largest was the $US3.4 billion share sale of China Life Insurance in 2003, according to Bloomberg data.

Growing deals

As it heads towards the public markets, Alibaba has been moving rapidly to bolster its reach with investments and acquisitions in China and abroad. The company is in talks to regain a stake in its Alipay payments affiliate, a source familiar with the matter said this month. It transferred ownership of Alipay to a company controlled by Ma in 2010.

In April, Alibaba said it agreed to acquire AutoNavi, China's most popular mobile mapping service, and was part of a $US250 million funding round for San Francisco-based ride-sharing app Lyft. In March, Alibaba said it would invest almost $US700 million in Intime Retail, a Beijing-based owner of department stores and supermarkets.

Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup are managing the sale.

Bloomberg

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