Despite rebuff, Alibaba may still list in Hong Kong

By Denny Thomas and Elzio Barreto

HONG KONG (Reuters) - Seemingly slammed shut just weeks ago, the door is still ajar for Alibaba to list its shares in Hong Kong.

Public comments by the Chinese e-commerce giant's founder Jack Ma and Hong Kong politicians, blog posts from the head of the Hong Kong stock exchange, and a statement from the bourse show a thaw on a divisive issue that has captivated the Asian financial hub.

In late-September, Hong Kong regulators rejected Alibaba's IPO because of the firm's special request to keep a shareholder structure allowing a group of top managers and founders - who together own only around 13 percent of the company - to nominate and control the company's board. That request went against the exchange's one-share-one-vote principle.

Hong Kong Exchanges and Clearing Ltd (HKEx), the world's No.2 listed exchange operator after CME Group Inc, didn't budge, and Alibaba took its IPO proposal to New York.

Now, the rhetoric from both sides has softened, and the shift in tone has rekindled the view that both sides - Alibaba Group Holding Ltd and Hong Kong's listing authorities - may be inching towards an eventual Hong Kong IPO, in a deal that analysts say could value Alibaba at more than $100 billion. A Hong Kong deal has always been the preferred option for Alibaba, which operates popular Chinese online marketplaces Taobao and Tmall.

"There's a conciliatory tone in the recent statements," said Steven Winegar, a Hong Kong-based partner at law firm Paul Hastings.

READY TO DISCUSS?

Last week, the HKEx said its listing committee discussed a possible market consultation on different shareholding structures offered by the exchange. "Progress was made in developing a course of action which may lead to a public consultation exercise," the exchange said in a statement.

While the exchange didn't cite Alibaba as a catalyst for the debate, it's difficult to ignore the connection. A public consultation process could take months, but an agreement allowing different shareholding structures would be a major step in allowing Alibaba to list in Hong Kong - though a question remains over whether the company would want to wait that long.

Alibaba, meanwhile, has also softened its tone, with Ma speaking openly about misunderstanding Hong Kong and its rules - a far cry from an aggressive blog posted on September 27 by Alibaba executive vice chairman Joe Tsai, who took aim at the city's stance on the partnership structure.

"Before this happened, we thought we understood Hong Kong quite well," Ma told journalists at Alibaba's headquarters in Hangzhou late last month. "I think we did not do good enough, we should understand Hong Kong more."

Winegar said Alibaba may have misjudged the reaction it would have in Hong Kong. "They may not have expected the amount of resistance to granting exceptions to the one-share-one-vote principle. Maybe the approach was too technical when a change in public policy seems to be necessary," he said.

Alibaba declined to comment. The company has consistently said it has not yet decided on when, or where, it will list.

TOUGH STANCE

Hong Kong's principled stance won plaudits from some, but left others in the financial industry frustrated at losing one of the world's largest technology listings.

The city's view on one-man, one-vote stems in part from its higher than average retail investor presence. Hong Kong also hosts many family-run companies that have a tight grip on their businesses. It lacks the legal recourse that the United States and Europe have for shareholders to sue when they feel their rights are abused.

Leading Hong Kong government officials are now also chiming in. In an emailed comment to Reuters, Financial Secretary John Tsang's spokesman said Tsang was open-minded on changes to the listing rules, and this was a matter for the market to decide. If there are to be changes, consultation is necessary, he said.

All of which is shifting the spotlight to Hong Kong's Securities and Futures Commission (SFC), which has the last say on Alibaba's application, and what compromises, if any, it would accept. The SFC declined to comment for this article.

HKEx CEO Charles Li backs a middle ground. "The key is to ensure a proper check and balance mechanism is in place," he wrote in an October 24 blog post.

"Shareholders should be able to veto (board) nominations at the shareholders' meeting."

(Additional reporting by James Pomfret; Editing by Michael Flaherty and Ian Geoghegan)