One of the major financial news in May is that Chinese internet giant Alibaba is going for initial public offering (IPO) in the US. Alibaba no doubt is the leader in e-commerce in China. It was said to keep a net income of 43% of its revenue. Analysts estimate its valuation ranging from US$136 billions to $250 billions. Alibaba said that it plans to raise 1 billion in this deal. The market insiders forecast the company could easily raise 20 billions. It is said to be a bigger deal than Facebook and Tweeter.
The move to raise capital in the US is certainly a step toward globalization, which can also be translated into capital influx for China. There are other advantages. For instance, American exchanges generally offer a better trading infrastructure and valuations that are typically higher than in Hong Kong or mainland China. In terms of the amount of money the enterprise can raise as potential net inbound foreign investment, there is nothing to lose on the surface.
The only disadvantage is that if this is a money making deal for sure, foreign capital will gain more than domestic capital. Although there are a lot of risks in the capital market, people’s savings and spare money have to go somewhere. It is a win win situation for both investors and enterprises if both parties can benefit from public offering.
The emerging real estate bubbles in mainland China, Hong Kong and Taiwan indicate that the public invest heavily in real estate. People need to invest their money on something that is more promising than real estate. Promising IPOs like the current one will bring money to the stock market. If the exchange is a Chinese one, Chinese people will benefit more than international investors in the transaction. Even though capital is fluid at this day and age, Chinese general public can still participate in Alibaba’s American IOP through a variety of channels. Locality does matter. Investors still value home court advantages.
As such, although where to IPO is certainly a strategic decision that each enterprise need to make on its own, how to enable the general public benefit from the fruits of domestic enterprises through the operation of capital market is also a matter that the society as a whole have to ponder on.