Alibaba listing opens new front in Tencent rivalry

[HONG KONG] A new front has opened up in China's biggest tech rivalry. Hong Kong investors can now own shares in both Alibaba and Tencent after the e-commerce giant's local offering. If regulators permit, the pair will soon be fighting over mainland shareholders, as well as digital payments and cloud computing. Tencent's scarcity value has been downgraded.

Strong demand in the financial hub helped pushed Alibaba's shares up 6.6 per cent on their Tuesday debut, as stock worth a whopping US$1.8 billion changed hands. That's equivalent to almost a fifth of the average daily turnover on the city's entire bourse in October. Part of the frenzy was driven by Asia-focused funds and local punters, neither of whom previously had direct access to the US$520 billion company's New York-listed shares.

Alibaba's arrival is awkward for its arch nemesis. Tencent's Hong Kong-listed shares dipped 1 per cent on Tuesday, underperforming the broader market. The company run by Pony Ma has long benefited from being by far the biggest publicly-traded Chinese Internet company in Hong Kong. Its shares are also accessible to mainland investors through the city's trading link with Shanghai and Shenzhen. Alibaba is not eligible for that scheme, because its primary listing remains in New York and its unorthodox corporate governance gives insiders extra clout. But given that Hong Kong regulators relaxed their rules to accommodate the company, it seems only a matter of time before mainland regulators do so too.

Shares of Tencent have typically fetched a valuation premium over Alibaba. Even now, the US$410 billion company is valued at roughly 26 times expected earnings for the next 12 months, while its rival trades at 23 times. That gap may narrow as more investors are able to choose between them. Moreover, the US$11 billion-plus that Alibaba raised from its Hong Kong listing gives it extra firepower to fight Tencent in battlegrounds ranging from video-streaming to fintech. The rivalry has entered a new phase.

Alibaba's Hong Kong-listed shares closed at HK$187.60, on Nov 26, their first day trading, up 6.6 per cent from the price of the Chinese e-commerce firm's secondary offering.

Turnover in Alibaba shares hit HK$14 billion (S$2.44 billion), according to Refinitiv data, making it Hong Kong's third-biggest stock market debut on record.

Alibaba raised US$11.3 billion from its secondary listing. The company has the ability to exercise an over-allotment option within 30 days, raising an additional US$1.6 billion.

The Hong Kong listing attracted strong demand from institutional investors. More than 215,000 retail investors also participated in the deal with the retail tranche more than 42 times covered, according to IFR.

Alibaba shares were up a further 2.2 per cent at HK$194.7 by 10am Hong Kong time (0200 GMT) on Nov 27.

REUTERS