Denny Thomas and Elzio Barreto Hong Kong

After a year of waiting, the man running what could be the biggest-ever technology initial public offering (IPO) finally lost patience with Hong Kong.

Joe Tsai, the Alibaba Group executive in charge of plans for the highly anticipated deal, only abandoned hope of a Hong Kong listing in the past few weeks, according to people familiar with the matter.

The company’s shareholding structure, giving senior managers sway over board appointments, would not pass muster with local regulators.

The final straw was the snail’s pace of a public consultation process of reviewing local listing rules on which Alibaba had pinned its hopes, the people said, adding that the delay, coupled with a rush of Alibaba rivals seeking to tap the frothy US tech market, had forced the company’s hand.

Last Sunday, after nearly a year of talks with Hong Kong regulators and stock exchange officials, Alibaba said it would list shares in the US in a deal expected to exceed Facebook’s $16 billion (about R172bn now) offering in 2012.

“Alibaba realised this was not a battle that they could have won within the time frame they were looking to float the company,” said Keith Pogson, the managing partner for financial services at consulting firm EY in Hong Kong.

“So they decided to find a home that was more accommodating with such structures.”

Alibaba’s choice is a blow to Hong Kong’s financial industry, in terms of lost prestige, fees and trading volumes. The absence of a large, dynamic tech company will sting the Hong Kong exchange as it tries to diversify its publicly traded stocks away from greater China financial and property firms, bolstering its status as a global financial centre.

Hong Kong’s loss is the US financial industry’s gain. The deal has the potential to bring in about $300 million in advisory fees alone for the banks involved, based on an estimated 1.75 percent commission.

The saga pitted a Chinese tech juggernaut and its financial advisers against securities officials guarding rigid shareholding rules meant to protect retail investor interests with a “one share, one vote” guarantee, in a city where family-run businesses and tycoons hold heavy influence.

“It’s a shame that Hong Kong lost the deal, but we lost the deal for good reasons,” said Pogson. “So we should congratulate the Hong Kong regulators for sticking to their guns on values, for showing that Hong Kong is a robust market where these kind of issues do matter and people care about investor protection.”

Alibaba had held out hope that a review of Hong Kong’s shareholding rules would keep the door open for a listing in the city, the people familiar with the issue said. But the public consultation moved slowly, with Hong Kong’s Securities and Futures Commission (SFC) pushing back against the stock exchange’s original draft proposals for a raft of rule changes.

The SFC was adamant that the proposed changes to the city’s listing rules should not be influenced by Alibaba’s hopes for a Hong Kong listing, the people said. Alibaba declined to comment on why it decided to list in the US.

The original plan to list late last year had already gone by the wayside last year in part because of SFC opposition to Alibaba’s unique corporate structure. Under Alibaba’s statutes, the company’s partners are able to nominate and control the board – a challenge to the “one share, one vote” standard applied in Hong Kong.

While Alibaba waited for Hong Kong regulators to make a decision, Tsai and company co-founder Jack Ma could see that not only were the stocks of US tech giants like Facebook and Google surging, but that smaller Chinese internet firms such as and Weibo were forging ahead with their own US listing plans. As the stalemate with regulators dragged on, there was concern within Alibaba’s camp the market’s appetite for what could be one of the largest IPOs would wane the deeper into 2014 the deal moved, people familiar with the matter said. – Reuters