[PDLM]

What do you folks reckon to the alibaba IPO? It seems to me that this is a very solid business indeed, with a good track record. The only major problem is the usual one that it will be so oversubscribed that you need to apply for a huge number of shares to get any significant allocation, and that ties up a large amount of capital (and/or incurs significant financing costs) for the 10 days of so of the IPO process.

But I note from the prospectus that there are two allocation pools of roughly equal size - one for applications of below HK$5M and one for applications above that amount. Is the thinking that if you apply for more than $5M you are likely to get a bigger or a smaller allocation relative to what you applied for?

[KnowItAll]

Had a long discussion with someone involved with the trade show circuit.

On one hand, this IPO is buzzword loaded, on the other hand, keep in mind that the IPO is for a small part of Alibaba.

Also heard today that the financing costs have been increased because of this IPO.

[PDLM]

HSBC is offering financing up to 90% of the value applied for at 5.75%pa - other recent IPOs have been at 5.5%, but in the scheme of things that isn't such a big deal.

The problem, as always, is that if you only get 1% of what you apply for then you need more than a 50% gain to cover the IPO costs at 90% financed. Hence my question about the two allocation pools. I'm assuming that only a fairly small number of retail investors in HK would be willing and apply to throw the HK$500,000 cash (plus HK$4.5M in financing) necessary to get into the high-value pool.

[Boris]

IMHO - Its going to be massively oversubscribed and come in at the top of its range. Everyone, but everyone, should understand this company and its huge earnings ( est 1 billion RMB profits in 2007/8 ) Both now and in the future. Its so far ahead of any competition in its field just as a trade portal.

Get the shares because they will jump on the opening as everyone will want to get in on at at the get go.

Only problem will be that the allocations for mere mortals is going to be small. BUT this will drive the price higher as people try to get more after it opens.

I read the original idea was to raise USD1 billion but it looks as if its going to get 1.5. just on the float of 17% of the enlarged share issue.

A very astute market entrance I think. Just enough to get funds they need and more than enough to keep coming to the trough over the years ahead with the balance of the issued shares.

All explained here http://today.reuters.com/news/articl...O-UPDATE-3.XML

[BenderBends]

how much are people planning on investing in the IPO?

[babu]

From my past experience I think the allotment will not exceed 0.3% in either pool.

[PDLM]

And this is the problem... you borrow $5M, you get allocated $15000 of shares, but your financing costs on the $5M are about $8000. So you need a 50% increase before you are ahead.

I have to say that I think what the banks are doing is immoral. If they offered to lend everyone $100M it wouldn't change the amount that anyone would actually get allocated, but it would hugely inflate the banks' profits for no effort at all. A financial regulator with any balls would get a grip of this...

[Boris]

So - is it unusual for a bank to behave as a business and make good profits where it can or do you see them as a charity?

If you don't want to pay the piper then use your own money instead. Problem solved !

Moral of the story " Money goes to money "

[PDLM]

Boris,

The problem is that even if I use my own money, by the banks acting in this way I have to tie up more of it. The banks could extend this all almost ad infinitum... if they agreed to lend everyone $1bn then anyone who wanted to use their own money would need to have a billion of it too in order to get an equal share. It is a huge scam by the banks.

[KnowItAll]

I don't get it. Why is it a scam?

People want to get in on the IPO action to flip the stocks within seconds of opening.

They need the money for 10-15 days during the application process.

IPOs are hot, so they need to extend themselves and take a loan...

Banks create a product based on demand and charge appropriate interest rates...

"They" (Alibaba / Banks ) have something that the consumer wants, and they've put a price on it.

Some might say .. free markets working at their best.