Group wants to keep partnership system in applying for HK listing

A senior executive of China's e-commerce king Alibaba Group Holding Ltd said on Tuesday the company will not compromise on its shareholding structure, a key issue that may cost the company's initial public offering dear in 2013.

Zeng Ming, chief strategy officer of Alibaba Group, said the company will insist on keeping its partnership system, a structure which has been declared "critical to the company's success" over the past four years.

"We are not asking Hong Kong (Exchanges and Clearing Ltd) to make us an exception. We hope they can accept our management style so that companies that share the same management system as us can all get listed," Zeng said, speaking from the company's headquarters in Hangzhou, Zhejiang province, where it holds its annual media gathering.

Alibaba has been debating with the Hong Kong stock exchange on the possibility to allow the company to list in Hong Kong and, at the same time, allow its "partners" - a group of founders and senior employees - to keep control over the makeup of its board.

Alibaba's proposal has put the Hong Kong stock exchange in an awkward position. On one hand, Hong Kong has resisted any moves by companies to use structures that treat shareholders differently. On the other hand, Alibaba's IPO would be a high-profile deal at a time when IPOs in the city are flagging.

Alibaba's listing could value the firm at about $70 billion and raise billions of dollars, according to analyst estimates, making it the biggest tech IPO globally since Facebook Inc's $16 billion listing last year.

Previous media reports said the HKEx is expected to hold another discussion on Alibaba's IPO on Thursday and will hopefully reach a preliminary clearing to determine the company's fate regarding the listing proposal.

A spokeswoman with the HKEx said on Tuesday it doesn't comment on market rumors or the meeting schedule of its listings committee.

Zeng, who joined Alibaba in 2006, refused to elaborate on the IPO issue. But he said Alibaba's partnership system serves the shareholders' best interests.

"The management sometimes makes decisions that will be proven unwise in the long run because they are under pressure from shareholders from the company's need for short-term financial reports," he said.

Zeng, who has the nickname "professor" at Alibaba because he served as a faculty member at INSEAD, one of the world's largest business schools, said the company respects the rules in capital markets but the capital market also needs to allow some innovation.

When asked what would happen if Alibaba's proposal of keeping its shareholding structure is rejected by the Hong Kong stock exchange, he said that - as the company's founder Jack Ma pointed out in a company-wide internal e-mail regarding the details of the company's internal partnership structure earlier this month - they can always choose another market.

Billy Mak, an associate professor at the finance and decision science department at Hong Kong Baptist University, said he wouldn't accept Ma's proposal because the dual-class structure is not consistent with the values upheld by the HKEx.

"It's pointless for the HKEx to review its listing rules to accommodate Alibaba because the dual-class structure in the case of Alibaba is not fair, just or transparent," said Mak.

"Hong Kong would become the world's third-biggest IPO market this year if Alibaba goes public there, but the price is too big and not worth it."

Compromising for Alibaba would set a bad example for other companies to ask for special treatment in future IPOs, Mak added.

Analysts said the door for Alibaba to list in Kong Hong is closing very fast and it is likely the company will not be able complete its IPO within 2013.

Starting on Oct 1, companies must appoint IPO sponsors - in other words, investment banks - at least two months before filing a listing application, according to new rules set out by the HKEx.

Applications usually take around one month to process and, if approved, a company would need another month at least to market the deal.

Contact the writers at mengjing@chinadaily.com.cn

(China Daily USA 09/25/2013 page16)