Alibaba plummets in Hong Kong following the $10.2 billion share placement
This is the largest post-listing capital increase ever carried out in Hong Kong by a single company
(Il Sole 24 Ore Radiocor) – A day to forget for Chinese giant Alibaba, which in Hong Kong, following a share placement of approximately 10.2 billion US dollars. This is the largest post-listing capital raise ever carried out in Hong Kong by a single company. With the proceeds from the operation, the company intends to invest substantial sums to secure global leadership in artificial intelligence. Alibaba has therefore placed 710 million new shares with investors outside the United States, at a price of 112.70 Hong Kong dollars per share. This represents a discount of around 10 per cent compared with Friday’s closing price of 123.00 Hong Kong dollars, totalling 80 billion Hong Kong dollars, equivalent to approximately 10.2 billion US dollars. The shares placed represent approximately 3.70 per cent of the issued share capital at the time the deal was finalised.
The capital raise reflects the desire of Alibaba to spend more than its Chinese competitors and close the gap on the investment levels of its US rivals. The company has committed to spending over 380 billion yuan over three years on AI, ranging from chips and data centres to the development of large language models. Shareholders are now waiting to see how the company will manage to turn these investments into value and returns. As shown by the quarterly results presented last week, net profit plummeted by 76 per cent in the first quarter of the financial year. Ongoing investment in artificial intelligence infrastructure has led to a significant increase in capital expenditure.
“The share placement could initially weigh on market sentiment due to the immediate dilution,” comment analysts at BofA Securities. The bank remains optimistic, however, and highlights the group’s strong prospects for its cloud business, the improving return on investment in AI, and the sequential recovery in free cash flow. “We view the transaction as a combination of growth financing, diversification of funding sources and proactive balance sheet strengthening,” the experts continued.
The share price is also being weighed down by comments from Michael Burry, the investor who rose to fame thanks to *The Big Short*, who said he ‘could not endorse’ Alibaba’s new share issue. “This once again represents a new paradigm for Baba, and its ROIC (Return on Invested Capital, ed.) will continue to decline,” he wrote yesterday in a social media post. Burry had intended to rebuild a large part of his position in Alibaba, having shifted it “not long ago” to JD.com. Now, however, he has abandoned the plan. The investor added that he would only take an interest in Alibaba again if the share price were to halve.
