Alibaba.com shares soar in trading debut

HONG KONG Tue Nov 6, 2007 11:14am EST

Jack Ma, chairman and founder of Alibaba.com, gives the thumbs-up at the Hong Kong stock exchange November 6, 2007. Shares in Alibaba.com nearly tripled on their trading debut on Tuesday, beating all expectations, after China's largest e-commerce firm raised $1.49 billion in Hong Kong's most popular initial public offering. REUTERS/Herbert Tsang

Jack Ma, chairman and founder of Alibaba.com, gives the thumbs-up at the Hong Kong stock exchange November 6, 2007. Shares in Alibaba.com nearly tripled on their trading debut on Tuesday, beating all expectations, after China's largest e-commerce firm raised $1.49 billion in Hong Kong's most popular initial public offering.

Credit: Reuters/Herbert Tsang

HONG KONG (Reuters) - Shares in Alibaba.com 1688.HK nearly tripled on their trading debut on Tuesday, beating all expectations, after China's largest e-commerce firm raised $1.49 billion in Hong Kong's most popular initial public offering.

The stirring debut reflects voracious appetite for China-related stocks, as investors, many of whom received far fewer IPO shares than they wanted, shrugged off the Hong Kong market's sharp drop on Monday and what several observers consider to be a sky-high valuation to buy Alibaba.com shares.

"I'm not convinced," said Andrew Clarke, a trader at Societe Generale Securities in Hong Kong. "It's massively overpriced. I'd rather go buy Exxon (XOM.N) at 15 times earnings."

Shares in Alibaba.com, in which Internet giant Yahoo Inc (YHOO.O) is a key investor, traded as high as HK$39.95, compared with an IPO price of HK$13.50, which was at the top of an indicated range after the company's share sale drew record demand from Hong Kong retail investors.

The stock rose steadily through the day despite a see-sawing broader market and closed at HK$39.50 for a gain of nearly 193 percent, valuing Alibaba.com at roughly US$25.6 billion and ranking it fifth among global Internet firms and top in Asia outside Japan.

Trading in Hong Kong was so frenetic that the Stock Exchange took calls from brokers asking whether there were slowdowns in the order-placing system.

"It's helped by the recent strength of tech stocks in the U.S.," said Louis Wong, research director at Phillip Securities.

"Baidu (BIDU.O) has risen above $400 and Google (GOOG.O) has held well above $700," he said, referring to the Chinese and U.S.-based Internet search firms, respectively.

With more than 162 million Web users, China is the world's second-largest Internet market after the United States.

"Because China is such a large, fragmented economy, the Internet is an attractive tool," said Robert James Horrocks, head of research at Mirae Asset Global Investments in Hong Kong.

Alibaba.com, an online business-to-business site connecting companies looking to import and export Chinese goods, was founded in 1999 as a bulletin board for businesses to post trade leads. The company says that at end-June its online marketplaces had more than 24 million members.

The Hang Seng Index .HSI ended 1.7 percent higher after dropping 5 percent on Monday in its sharpest one-day fall since September 2001, which had led many observers to lower their expectations for Alibaba.com's trading debut.

HIGH VALUATION

Investors clamored for Alibaba.com shares even though its IPO price valued the company at more than 106 times forecast 2007 earnings -- a premium to most of its peers -- and its Tuesday performance lifted its valuation to a stratospheric 316 times.

"For global funds, it's the only type of e-commerce service sector stock in the region. For e-commerce, it's the Asian proxy," said Andrew Sullivan, sales trading director at Daiwa Securities.

By comparison, Baidu.com Inc trades at 170 times 2007 forecast earnings, while Google Inc is at 46 times and eBay Inc (EBAY.O) at 23.5 times. Trade media company Global Sources Ltd (GSOL.O) trades at 47 times, while Hong Kong-listed Tencent Holdings Ltd (0700.HK) trades at 77 times prospective earnings.

"The price set is reasonable. I said it two weeks ago, and today's performance has proven me right," said Alibaba.com Chairman Jack Ma, who founded the company in the eastern city of Hangzhou and is one of China's highest-profile entrepreneurs.

Money has poured into Chinese companies listed in Hong Kong, partly on expectations that investors in mainland China, where stocks are among the world's most expensive, will eventually be able to buy stocks listed in Hong Kong.

On Monday, PetroChina (601857.SS) shares more than doubled on their debut in Shanghai, making China's top oil producer by far the world's biggest listed company by market value at around $1 trillion.

The HSCE Index .HSCE of Chinese stocks traded in Hong Kong was up nearly 79 percent in 2007 through Tuesday, while the Shanghai benchmark .SSEC has more than doubled.

HEAVY DEMAND

Alibaba.com sold 858.9 million IPO shares, or 17 percent of its enlarged share capital, in a deal handled by Deutsche Bank (DBKGn.DE), Goldman Sachs (GS.N) and Morgan Stanley (MS.N).

The company generated orders worth HK$447.5 billion (US$57.4 billion) from Hong Kong retail investors alone, making it the most popular IPO in the city, beating share sales by Industrial and Commercial Bank of China (1398.HK) (601398.SS) and Belle International (1880.HK).

Yahoo holds a 1.2 percent stake in Alibaba.com, as well as a 39 percent stake in Alibaba.com's parent firm, which holds 75 percent of the listing company.

Other investors in the IPO included Cisco Systems (CSCO.O) and Taiwan's Hon Hai Precision Industry Co (2317.TW). The high level of oversubscription means many investors were disappointed with their share allocations.

(US$=HK$7.8)

(Additional reporting by Rita Chang & Vinicy Chan; Editing by Ian Geoghegan)

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