Alibaba unveiled its filing Tuesday, in what may be the biggest U.S. technology IPO ever. The company is based in China, yet it chose to list in New York instead of Hong Kong.
Alibaba is part of a wave of Chinese companies listing in the United States. Data analytics platform Cheetah Mobile and online travel company, Tuniu, both made their public debuts this week. Next week Jumei, China’s top online retailer of beauty products, plans to list in the U.S. Two are listing on the New York Stock Exchange and one will debut on the Nasdaq.
An additional four Chinese companies went public in the U.S. so far this year. Weibo (NASDAQ:WB), the Chinese answer to Twitter, is the only IPO that is trading above its IPO price.
“The U.S. IPO market has been favorable to Chinese listings until recently,” says Kathleen Smith, principal at IPO investment advisory firm Renaissance Capital. “The four U.S.-listed Chinese IPOs that have been done this year have disappointed.”
While the U.S. IPO environment has lately been challenging, China’s has been even more troublesome. Renaissance tracks the performance of IPOs and has seen the HK/China Top IPO Index down 17% for the year, whereas the U.S. IPO ETF is just down 6%.
There are additional advantages for listing in the U.S. Alan Jones, partner and Northern California IPO advisory leader at PricewaterhouseCoopers, says that “relative valuations, particularly within the Technology Sector, are more favorable in the U.S. than in Hong Kong.” Jones also points to Chinese legal obstacles, saying “the U.S. regulatory environment is much more structured.”
Alibaba is said to have shunned Hong Kong because of regulatory hurdles. Chinese companies may also be drawn to the dual shareholder structures, that allow founders to maintain greater control of the company after the IPO.
There were eight Chinese IPOs in the U.S. in 2013 and two in 2012. Companies in the pipeline include ecommerce site JD.com, mobile games company Chukong Tech, and career website Zhaopin.