Alibaba flotation could herald the rise of a more global internet, says expert

Out-Law News | 23 Sep 2014 | 11:56 am | 2 min. read

A number of other Chinese companies are likely to follow Alibaba by seeking funding from investors in western markets, an expert has said.

Technology sector corporate law specialist Andrew Hornigold of Pinsent Masons, the law firm behind Out-Law.com, said that the move could signal the rise of a more global internet.

"Commentators have said that the Alibaba stock floatation in New York is a bet on a more global internet and I think that is right," Hornigold said. "There are likely to be other Chinese companies monitoring Alibaba's share price performance and contemplating whether an initial public offering (IPO) on the New York Stock Exchange (NYSE), in London or other western markets, is an option for them to pursue to raise capital."

On Friday, China-based online retail giant Alibaba launched an IPO on the NYSE. Shares in the company were initially available at a price of $68 per share but reached $93.89 per share in value by the end of the day. The company raised $21.8 billion from its IPO, making it one of the world's largest value IPOs ever recorded.

Hornigold said that Alibaba is a diverse business that has invested heavily in mobile banking and operates services similar to Twitter and YouTube. It will have opportunity to grow its business internationally in these and other areas, and will be helped by the fact it sells to businesses as well as consumers, he said.

Hornigold said that Alibaba's growth, business model and US floatation can inspire other Chinese companies at a time when the nature of the Chinese economy has changed from being predominantly dependent on low cost manufacturing to one based on research and development, design-led manufacturing and increasing services orientated too. He said strict rules on governance and transparency, overseen by the Securities and Exchange Commission in the US, will become less of a problem for Chinese companies to comply with over time.

"While the Alibaba floatation has been an initial triumph, the success of similar flotations by China-based companies on western markets is likely to depend on investor sentiment," Hornigold said. "There may be a reluctance to invest in Chinese companies, particularly in the US, and a lot will depend on whether they can build trust by becoming more transparent about their corporate structure, profit-making and operations."

"In the case of Alibaba, the $5 billion-worth of acquisitions they have made since the beginning of 2014 highlights the company's appetite for growth. This level of activity, coupled with the good margins it makes, is likely to attract investors keen to 'follow the money' regardless of where they or the company they are investing in are based," he said.

Hong Kong-based technology law expert Peter Bullock of Pinsent Masons said that he did not think that Alibaba would be likely to take on major western online retail brands such as Amazon and eBay in their own markets. He said that the company is "likely to diversify and invest quite heavily overseas".

Bullock said he believes the company is sophisticated enough to adapt to US and EU rules on consumer protection, e-commerce regulation and other regulatory matters.