News Analysis: Alibaba's IPO delay reasonable, timing matters most
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E-mail Xinhua, July 25, 2014
Investors will have to be a little more patient with China's e-commerce giant Alibaba's highly-anticipated initial public offering (IPO) on the U.S. stock market, which was put off until after the U.S. Labor Day on Sept. 1 instead of early August.
As investors are guessing all kinds of possibilities behind the postponement of what could be one of the largest IPO in the U.S. history, market experts have reacted calmly, saying the delay was reasonable.
"I absolutely think that literally the timing is better," Mark Otto, partner at J. Streicher & Co. LLC and a senior trader at the New York Stock Exchange, told Xinhua Wednesday.
"Typically, August is the vacation month for Wall Street traders. So volume usually tends to die down in August. So for maximum participation in the IPO, it's better in September when traders are returning," he illustrated.
Echoing Otto's view, Nicholas J. Colas, chief market strategist at ConvergEx Group, a global brokerage company based in New York, said that "putting off the deal to September makes sense."
"As we found in our investor survey, Alibaba will have to appeal to a broad base of investors -- many of whom do not own Chinese equities -- in order to have the best possible transaction," Colas told Xinhua.
"This will be a very important transaction and also very large. That means both the company and the underwriters will want to have as many investors as possible hear the story and have a chance to speak with management," Colas said.
Alibaba first filed its IPO document with the U.S. Securities and Exchange Commission (SEC) on May 6. Afterwards, the company submitted three amended prospectus to the SEC on June 16, June 26 and July 11, respectively.
According to Jack Y. Liu, senior vice president at Chardan Capital Markets, a New York-based investment bank, it usually takes three months for the SEC to approve a company's prospectus, thus early August would be the earliest possible time for Alibaba to get the approval.
Liu told Xinhua Thursday that August is the summer vacation month on Wall Street and the IPO window will not open until September, so it is normal if it took Alibaba four months to go public.
"August is too ambitious," said Otto. "Apparently there has been all these back and forth, ... which for a deal this big, I don't think that's anything unusual."
Liu said that what the SEC concerns most is not whether the company is good or bad, but whether the company is able to disclose all the important information in the simplest, clearest and understandable way, namely the quality of information disclosure.
"The quality of information disclosure can be improved through continued communication, amendments and feedbacks," Liu said, adding that a relatively complicated firm with many subsidiaries and unique structure usually takes four to five rounds of amendment and feedback to complete.
In its first amendment on June 16, Alibaba revealed for the first time the 27-person partnership, future listed company's nine-member board of directors and its financial situation. In its second amendment on June 26, the company announced that it picked the New York Stock Exchange as its IPO venue and "BABA" as its ticker symbol. Its most recent update came on July 11, when the company expanded its board of directors to include two extra members nominated by the Alibaba partnership.
Liu pointed out that the time period between Alibaba's amendments is shortening, indicating that the SEC is requiring less information from the company. He estimated that there could be one or two more amendments before getting the SEC's final approval of the offering.
Otto said Alibaba may add in its next revised prospectus the amount of shares to be issued, its second-quarter earnings, and its active business dealings recently.
"I think most reports that I've read seem to illustrate the fact that things are going rather smoothly. I don't see things as far as red flags coming up," Otto said.
Alibaba, which Wall Street Journal dubbed as "a mix of Amazon, eBay and PayPal with a dash of Google," had a gross merchandise volume of 248 billion U.S. dollars in 2013 on its three major trading platforms, more than those of eBay and Amazon.com combined.
Analysts expected the company to raise 15 billion dollars to 20 billion dollars through the IPO, likely to challenge social networking company Facebook's 16-billion-dollar offering in 2012 and credit card company Visa's 19.7 -billion-dollar IPO in 2008.
An old Chinese saying goes: "Nothing good comes easily." While postponing the extraordinary IPO for a month or so is probably not a big issue for Alibaba, choosing the best timing to go public matters the most.
"If Alibaba (IPO) goes well, it will give investors confidence that there is still broad demand for equities. This should be positive for stock markets, especially in the U.S. and China," said Colas.
"I believe the IPO is going to strengthen Chinese e-commerce stocks," Otto said. Endi
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