(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By John Foley
BEIJING, May 20 (Reuters Breakingviews) - Alibaba’s initial public offering is going to be less about the forty thieves, and more about the fight for fees. The unlisted Chinese e-commerce giant is already an important source of advisory and financing revenue in a weak market. If a highly anticipated stock market listing comes to pass, it could become China’s biggest payer of fees to global investment banks in a decade.
As the company has expanded, chairman Jack Ma has overseen the listing and de-listing of subsidiary Alibaba.com, the arrangement of a $3 billion syndicated loan, the restructuring of payment engine Alipay, and a buyback of shares from U.S. investor Yahoo. Such deals generated combined fees of $176 million since 2007, according to Thomson Reuters Freeman data, based on public disclosures and proprietary estimates. That’s more than any other non-state Chinese company over the same time.
The treasure keeps coming. Alibaba recently secured another $6.5 billion syndicated loan from a consortium led by nine banks, according to IFR. Based on an average arrangement fee of around 1.7 percent, the payday was worth about $110 million.
Graphic: Alibaba and the fight for fees: here
The next big event could be an initial public offering. The company doesn’t comment on its plans. But given that valuation expectations range from $60 to $100 billion, it’s no stretch to think that Alibaba and its backers could sell $15 billion of stock, a bit less than Facebook did in 2012. Apply a 1.75 percent commission, and the spoils could be $260 million.
All in, that would take Alibaba to roughly $550 million in fees over a decade – ranking only behind oil producer CNPC and lender ICBC in Greater China. Moreover, unlike Alibaba, CNPC and ICBC have paid the lion’s share of their fees to domestic institutions.
Even after an IPO, Alibaba is likely to continue generating fees from acquisitions and share trades, as big shareholders like Yahoo sell down. Little wonder, then, that battle lines are already being drawn. SoftBank (9984.T), the Japanese company that owns a third of Alibaba, recently warned banks not to finance a rival bid for U.S. telecom Sprint (S.N), or risk being left out of the e-commerce giant’s flotation, sources told Reuters.
That may be an idle threat, but given Alibaba’s prospects, few investment banks would be prepared to put it to the test.
- SoftBank has asked investment banks not to finance a rival bid for Sprint Nextel Corp by Dish Holdings, saying that doing so could hurt their chances of winning a role on an Alibaba listing, two people with knowledge of the matter told Reuters.
- The Japanese telecom company owns 33 percent of Alibaba, which is China’s biggest e-commerce operator through its online store, Tmall, and consumer-to-consumer marketplace Taobao. Yahoo, the U.S. internet group, owns around a further 23 percent.
- Alibaba does not comment on its IPO plans, and has neither set the timetable for an initial public offering nor hired underwriters. But the terms of a shareholder agreement with Yahoo give the company an incentive to complete a listing before the end of 2015.
- Alibaba bought a 28 percent stake in digital mapping company AutoNavi Holdings on May 10, for $294 million. At the end of April, the company acquired an 18 percent stake in microblog Sina Weibo for $586 million.
- The company has also arranged $6.5 billion of syndicated loans, according to IFR on May 16. Of that, $2.5 billion carries an arranger fee of between 1 and 1.5 percent, dependent on the amount each bank agrees to take on, while $4 billion carries a fee of 1.75 to 2.25 percent.
- Graphic: Alibaba and the fight for fees: here
- Graphic: What is Alibaba worth?: link.reuters.com/myc67t
- Reuters: SoftBank asks banks not to finance Dish’s Sprint bid [ID:nRLP08590a]
Opening Sesame [ID:nL3N0DH0SO]
Alibaba and the twelve digits [ID:nL3N0DA0FS]
- For previous columns by the author, Reuters customers can click on [FOLEY/]
(Editing by Peter Thal Larsen and John Foley)
(Research by Robyn Mak)
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