Alibaba Group Holding Ltd. is dangling a US$200 million carrot on bankers to ensure a successful initial public offering (IPO) in the United States, Bloomberg reported Wednesday.
That’s about 1.1 percent of the estimated US$18 billion it plans to raise in the blockbuster listing, the world’s biggest share offering since Facebook went public in 2012.
China’s largest e-commerce company is taking a leaf out of Hong Kong’s IPO playbook in which performance incentives are used to drum up the listing process. It was used to great effect by Agricultural Bank of China Ltd. which raised US$19.21 billion in its 2010 Hong Kong listing.
In the US, most IPO fees typically go to one or two firms picked to lead a sale, and the breakdown is agreed to ahead of time, the report said.
The arrangement reflects the power bankers hold over companies during the IPO process, University of Notre Dame Prof. Tim Loughran was quoted as saying.
It can also result in banks serving a client other than the company — the fund manager who regularly buys into IPOs and is seeking to pay as little as possible for the stock, he said.
“High-quality work should be rewarded, so this is very much a positive,” said Loughran, a professor of finance. “Companies like Alibaba that have more power, can get away with this stuff because in the negotiations they’re in the driver’s seat. For most IPOs in the US, it’s the reverse. The bankers are the drivers.”
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