NEW YORK, NY Sept. 15 (DPI) – The $22 billion initial public offering on the New York Stock Exchange for Chinese e-commerce company Alibaba could be a milestone for global finance: It’s seen as one of China’s most successful new internet companies, and it’s raising record-breaking amounts of capital, while tapping investors around the world.
All an investor can say is: Let’s hope the company is all it claims to be.
The stakes of this deal – for building trust and credibility in the public capital markets across borders – are huge. A successful offering of shares will attract more new internet firms from the state-controlled Chinese economy, and accelerate the growth of cross-border finance, particularly for large global stock deals, which have languished for years.
But a failed offering — especially one based on any sense that the company’s financial information was falsified – would be disastrous for everyone involved, especially the US firms that run Wall Street and the Chinese Communist Party, which controls most companies in China today. That includes Alibaba, regarded already as financially successful as Ebay and Amazon, among other US internet e-commerce firms. As the New York Times wrote today and in May:
At a share price of $70, for example, Alibaba’s I.P.O. would raise $22.4 billion, making it the biggest I.P.O. in history, surpassing the $22.1 billion raised by the Agricultural Bank of China in its 2010 listing on the Hong Kong and Shanghai stock exchanges.
“Alibaba is the fastest-growing Internet company in one of the fastest-growing economies in the world,” said Sameet Sinha, an analyst with B. Riley & Company, a boutique investment bank in Los Angeles. “They are like an Amazon, an eBay and a PayPal.”
There are still major caveats about Alibaba. For starters, US investors already have heard the grand pitches of Internet companies over the years, and many – like Yahoo and Amazon – have grown only in fits and starts, and reported often disappointing earnings.
For its part, Alibaba is reporting eye-poppingly good financial results and growth in the last three years , including net income last year of about $1.3 billion on about $6 billion in revenues, all of which sounds, well, too good to be true. And as a marquee Chinese company, serious scrutiny will be harder to undertake by all the traditional truth-seekers: financial journalists, securities regulators, even Wall Street analysts and research houses. Still, there is documentation:
http://www.nytimes.com/interactive/2014/05/06/business/dealbook/07alibaba-documents.html
With the flurry of documentation, investors can only hope that the company, and the people who control it, are reporting facts.
Proper disclosure is a foundational part of taking all companies to public market. But Chinese-based companies, with the support and control of the regime there, has plenty of additional temptation to fudge things – and, with much riding on the deal for China, get away with it.