Short sellers are making their first bets on a retreat in Alibaba Group Holding Ltd. (BABA) a week after the company priced the world’s biggest-ever initial public offering.
Bears who profit from price declines have sold short 12.1 million shares, or about 3.3 percent of Alibaba’s listed stock, according to data compiled by Bloomberg and Markit, a London-based provider of financial information. The Hangzhou-based company, China’s biggest e-commerce operator, sold 368.1 million shares in the IPO. The stock fell 1.8 percent to $88.92 in New York yesterday.
“Out of the gate we see high demand to borrow shares of Alibaba,” Andrew Laird, a New York-based product specialist at Markit, said yesterday in an e-mailed response to questions. “This is a relatively small amount compared to the total shares outstanding but still significant considering the limited supply that is available to borrow following an IPO.”
Demand from investors seeking exposure to China’s e-commerce industry allowed the company to raise $25 billion, surpassing the previous IPO record held by Agricultural Bank of China Ltd.’s $22.1 billion sale in 2010. The stock has fallen three out of four days this week after rallying 38 percent on its first trading day, the biggest price increase for a new stock offering of at least $10 billion, data compiled by Bloomberg show.
The interest rate for borrowing shares of Alibaba, or indicative fee, was 0.5 percent, down from an early cost of 8 percent, according to Markit. The average borrow fee for members of the Standard & Poor’s 500 index is less than 0.5 percent. Tapping securities on loan is the first step in a short sale, where a bearish trader borrows a stock and sells it, hoping to profit by replacing it at a lower price.
“The rate has come down significantly and this is likely due to the fact that there are a lot of shares available to lend out,” Laird said today.
There are 45.1 million shares available to lend, according to Markit.
Alibaba declined to comment on the short selling in an e-mailed statement.
Prior to Alibaba’s IPO, four of the five largest companies to list on U.S. exchanges — including General Motors Co. and Facebook Inc. — plunged more than 17 percent in the year after going public. The exception, Visa Inc., soared 28 percent raising $19.7 billion in 2007.
Alibaba is trading at about 34 times estimated earnings for the next twelve months, according to analyst projections compiled by Bloomberg. The Bloomberg China-US Equity Index has a multiple of 17, while Alibaba’s e-commerce competitors Vipshop Holdings Ltd. and Jumei International Holding Ltd. trade at multiples of 46 and 27, respectively.
A gauge of seven China-listed companies that either sold stakes to Alibaba or have partnerships with the e-commerce business rose 1.4 percent to the highest level since May 2008, while the Shanghai Composite Index rose 0.1 percent at the close today.