Alibaba breaks world IPO record as underwriters sell additional shares

After breaking the record for biggest US IPO, Alibaba Group Holding Ltd.s listing now ranks as the worlds biggest in history at $25 billion as underwriters exercised an option to sell additional shares amid sky-high investor interest. The overallotment was first reported by the Wall Street Journal.

During Alibabas debut on Friday, shares failed to begin trading for more than two hours – the longest such delay in NYSE history, as overwhelming demand made it hard for banks to find sellers. During the IPO process, the e-commerce giants shares were priced at $68 and surged by the staggering 38% during Fridays trade to $93.89, having reached an intraday high of $99. This was the biggest first-day jump for an IPO exceeding $10 billion and valued the company at $231.4 billion, making it larger than Facebook Inc., and Amazon.com Inc. and EBay Inc. combined.

Li Muzhi, a Hong Kong-based analyst at Arete Research Service LLP, said for Bloomberg: “Expectations for this company are sky high. The market seems to be using Alibaba as a proxy for the macroeconomy and consumer economy.”

Alibaba initially managed to raise $21.8 billion in its IPO, trailing the previous record set by Agricultural Bank of China Ltd which raised $22.1 billion in 2010. However, according to a person familiar with the matter, who asked not to be named because the information is still private, overwhelming investor interest prompted underwriters to exercise the so-called “green shoe” option and sell an additional 48 million American depository shares, raising the total value of the IPO by 15% to $25 billion – the worlds biggest on record.

The green shoe option allows companies going public to increase the flotation size once trading has begun, usually as a response to heightened investor interest. Within the option, underwriters buy additional shares from the company to cover stock they sold in order to meet high demand. Were investor interest low so that the stock had fallen below the IPO price, bankers likely wouldnt have exercised the option.

Alibaba agreed to sell an extra 26.1 million shares and Yahoo Inc. 18.3 million, registering proceeds of around $1.8 billion and $1.2 billion respectively. Alibaba founder Jack Ma agreed to sell an additional 2.7 million shares, netting $183 million, while co-founder Joe Tsai agreed to sell little over 900 000 additional shares for little over $61 million. Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Deutsche Bank AG and Citigroup Inc. managed the offering.

The overwhelming investor interest comes on the back of flourishing growth and even brighter prospects. More than half of the nations total package shipments (around 54%) were generated through Alibaba in the year ended June. During the quarter ended the same month, sales jumped by 46% in local currency to $2.54 billion, while operating profit surged to $1.1 billion, 42% higher than the combined profit of Amazon and eBay.

Around 630 million Chinese have access to Internet, and according to government data, their number will likely surpass 850 million by 2015. This will help the Chinese e-commerce market to expand to nearly $400 billion next year, tripling its size since 2011.