More fuel has had been added to the already scalding hot anticipatory fire that is the Alibaba initial public offering as the Chinese e-commerce will reportedly offer its shares at $60 to $66, valuing the company at about $160 billion at the midpoint of that range.
“It isn’t unusual for companies seeking to go public to set an initial price range that proves to be below where the offering eventually prices,” reports the Wall Street Journal, which broke the news of the Alibaba offering range.
Alibaba is expected to commence its IPO roadshow in New York on Monday with an eye toward its New York Stock Exchange listing under the ticker “BABA” in reportedly less than two weeks.
What is important for ETF to investors to remember is that Alibaba’s $160 billion valuation, roughly the current market capitalization of Amazon (NasdaqGS: AMZN), does not directly equate to a market value of $160 billion. That is critical because some of the ETFs that will quickly add the stock, including the KraneShares CSI China Internet Fund (NasdaqGM: KWEB) and the KraneShares CSI China Five Year Plan ETF (NYSEArca: KFYP), are cap-weighted funds. [China Internet ETF Tops $100M in AUM]
What will determine Alibaba’s market value is the number of shares it floats in the IPO along with subsequent market appreciation or, gasp, downside. A stocks market value is determined by multiplying current share price by shares outstanding.
KraneShares Managing Director Brendan Ahern notes that Alibaba’s IPO will be small in terms of share count and that could be intentional on the company’s part.
It is expected Alibaba will sell 320 million shares with the ability to add another 48 million shares if demand is robust. Assuming 368 million shares are sold at the higher end of the $60 to $66 range, Alibaba’s opening market value is expected to be about $24 billion.
Ahern also points out that Japan’s Softbank owns 34% of Alibaba, Yahoo (NasdaqGS: YHOO) owns another 23% while founder Jack Ma controls 9%. According to an updated filing with the Securities and Exchange Commission, Ma will sell 10% of his stake in the IPO while Yahoo is expected to trim its Alibaba holdings by about 20%.
While mostly speculative and far from an exact science at this point, it is possible to make educated guesses regarding Alibaba’s presence in KWEB and KYFP, both of which can add the stock after its eleventh trading day.
Assuming shares of Alibaba double over the first 11 days, it would surpass JD.com (NasdaqGS: JD) as KWEB’s third-largest holding, based on JD’s $34.9 billion market cap at Friday’s close. A market cap in the area of $48 billion or $50 billion would also be enough to make Alibaba KFYP’s third-largest holding. Baidu (NasdaqGS: BIDU) and Tencent Holdings (OTC: TCEHY) are the two largest holdings in both KFYP and KWEB. [Alibaba Will Find a Home in This ETF]
KraneShares CSI China Internet Fund
