Alibaba Shows That Chinese Firms Can Leave IPO Money On The Table As Well As US Firms
from the not-such-a-good-thing dept
There’s lots of buzz today about how China is experiencing a dot com bubble similar to what the US faced a while back, with the news of Alibaba.com’s first day pop on the Hong Kong Stock Exchange. The stock nearly tripled after debuting, which is the type of thing that gets lots of press. Yet, once again, people seem to be missing out on the simple fact that this first day pop means the company left a lot of money on the table. The bankers who brought the stock out mispriced the offering by 3x apparently. Pricing certainly isn’t an exact science — and it’s perfectly reasonable to slightly underprice the offering to lower some of the initial risk, but to underprice a stock so badly is not a good thing. Effectively, Alibaba could have raised 3x the amount of money they got, with no additional dilution. Instead, it raised 1/3 the money, and the other 2/3 went to Wall Street folks who flipped the stock quickly. While this does mean that Alibaba can now raise more with secondary offerings (assuming the price stays up), it still looks like the company left an awful lot of money on the table.