Alibaba IPO hits record level

BY Richard Summerfield

Alibaba Group Holding Limited has completed not only the largest ever US-listed IPO but also the world’s largest-ever stock market flotation.

Shares in the e-commerce giant were initially priced at $68 each. Due to overwhelming demand, the firm’s underwriters were required to take up the option to purchase an additional 48 million shares. Accordingly, the total raised from Alibaba’s offering rose from an initial $21.8bn to $25bn. Once trading began, the company’s share price soon reached $99 before finally closing at $93.89, a jump of 38 percent from the offering price.

Based on the company’s closing price on the first day of trading, Alibaba has a market capitalisation of around $230bn. This makes it more valuable than a host of other notable internet firms, including Facebook Inc and Amazon Inc. Indeed, Alibaba has become the world’s second largest internet company behind Google Inc.

A group of Alibaba's existing shareholders, including chairman Jack Ma, vice chairman Joseph Tsai and internet giant Yahoo Inc, provided the extra shares for the overallotment. Mr Ma sold an additional 2.7 million shares, taking his tolal shares sold in the IPO to around 15.5 million. Including the 900,000 shares he sold during the overallotment, Mr Tsai sold a total of 5.2 million shares. However, Yahoo gave up the most shares during the IPO, divesting around 140 million shares in total, including 18.26 million in the greenshoe. Yahoo is believed to have generated around $9.5bn in pre-tax cash from the sale, and earmarked around $6bn of the after-tax proceeds to be returned to shareholders. It is likely to undertake a number of stock buy-backs in order to facilitate the return. Some observers expect Yahoo to use the remaining cash to carry out a number of acquisitions.

The success of Alibaba’s IPO came despite lingering concerns about the company’s corporate structure. Under the firm’s variable interest entity (VIE) structure, buyers of Alibaba’s stock do not actually own the underlying business, because Chinese government regulations restrict foreign ownership in the sector. The VIE structure was established as a means of circumnavigating those regulations, and although Chinese authorities may take a dim view of the company’s use of the tactic, Alibaba’s strong level of influence may protect it from scrutiny.

News: Alibaba IPO ranks as world's biggest after additional shares sold

Indian infrastructure boom predicted

BY Richard Summerfield

Indian infrastructure development is set to enter a golden era over the next decade, according to PwC.

In its report 'Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions', PwC expects the wider Asia pacific infrastructure market to grow by 8 percent per year over the coming decade, reaching $5.36 trillion by 2025, a figure which would represent 60 percent of the world’s investment total. Growth in the region is due to be driven by favourable conditions in the most dominant economies, India and China, as well as a number of South East Asian nations. The size of the consumer base, abundance of natural resources and low cost workforce will all help to drive investment in the region in the coming decade.

The marked increase in infrastructure spending in India over the next decade is expected to be influenced by improvements and investment in a number of industries, including housing, telecoms, healthcare, education and transportation, among others. Some of the most significant growth is expected in the transportation and utilities sectors, where investment is due to treble as income and travel demand rises and the rapid urbanisation of the Indian population continues apace. The population of India's towns and cities is likely to expand to around 600 million by 2031, according to the UN.

A second PwC report, 'Capital project and infrastructure spending: Outlook to 2025', has also highlighted the investment needs that will be propagated by India’s burgeoning urban population. “The ongoing development of technology services sector, as well as demand from households, is likely to drive investment in telecommunications infrastructure. The population is expected to grow much faster than other countries in the region, which will further boost demand for infrastructure sectors serving households," the report said. The telecoms sector alone will see infrastructure rise increase to $130bn by 2025, up from $27bn in 2013.

On 16 September private equity giant KKR announced that it had agreed to invest $164.2m of structured long-term financing, with a number of co-investors, in leading Indian infrastructure development company GMR Holdings, the holding company for GMR Infrastructure.

Report: Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions

Big banks cut lending

BY Richard Summerfield

Consumer and business lending by the UK’s largest banks has fallen by $595bn over the last five years, according to a new report from KPMG.

Total lending at Barclays, Royal Bank of Scotland, HSBC, Lloyds and Standard Chartered dropped 14 percent to £2.33 trillion in the first half of 2014, compared with five years earlier. The dramatic decline in lending is the result of the enormous fines and compensation packages which banks have had to accept in order to make amends for their recent chequered past. Since 2011, remediation payments made by the big six British banks have totalled £31bn, although the year on year remediation figure in H1 2014 was down 44 percent to £2.4bn.

The overall reduction in lending since 2009 is also a result of a new risk-averse mentality permeating the big UK banks. KPMG believes that major banking groups in the UK have lost sight of the risk-taking required in the sector. That said, it appears that a number of banks are beginning to take steps which will help the sector return to sustainable growth. Profits have begun to recover , thanks to a new tone at the top. The big six banks reported a combined profit of £15.2bn in H1 2014, continuing the return to profitability first recorded in the second half of 2013.

However, KPMG also notes that the UK’s wider banking sector is approaching “crunch time” due to the rise of pay day lenders and other shadow banking groups. Bill Michael, EMA head of financial services at KPMG, noted that “Shadow banking initiatives are increasingly penetrating under-served areas of the market. These initiatives are creating a challenging environment that traditional banks are unfamiliar with. Equally, if banks get to grip with technology quickly, there is a unique opportunity for banks to capitalise upon. While competitors entering the market do not have the same legacy-based obstacles preventing them from pursing new opportunities, banks can offer the scale, reach and experience many players cannot.”

Report: KPMG’s report analyses the published 2014 half-yearly results of Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered

Entertainment firms eye growth in improved economy

BY Matt Atkins

The media and entertainment (M&E) industry is ready to take the spotlight, according to a new EY report, as executives shake off their fears for the economy and shift from cost cutting to growth.

EY surveyed 50 large global M&E companies for the 'It's Showtime! Digital drives the agenda, data delivers the insights' report, which showed that only 26 percent of senior executives surveyed were concerned that economic uncertainty would impact growth, compared to 62 percent in 2012. The survey spanned industry sectors including filmed entertainment; broadcast and cable networks; music and radio; advertising; internet and interactive media; and publishing and information services.

The report showed that firms are well positioned to grow their companies through capitalising on digital opportunities and investments in technology, digital talent and infrastructure, as well as acquisitions and other deals. The average deal value during the first half of 2014 was US$939m, compared with US$220m in 2013 and US$157m in 2012, with cable operators driving the rise.

"The CFOs told us in no uncertain terms that the economy is no longer an obstacle and now is the time for media and entertainment companies to invest in growth and focus on building their businesses," said John Nendick, Global Media & Entertainment Leader at EY. "The industry is now poised to deliver on the promises it has been making the past several years but has been unable to achieve because of the economy. The CFOs recognise the recession is over and it's showtime."

Though the outlook has improved, the M&E industry still faces challenges. According to EY, the greatest tests for M&E firms going forward are technology and platform disintermediation, an inability to persuade consumers to pay a fair price for content and regulatory uncertainty.

Report: It's Showtime! Digital drives the agenda, data delivers the insights

Infrastructure spending to soar, shift eastwards

BY Matt Atkins

According to new PwC research, global spending on infrastructure and capital projects is set to rocket, hitting $9 trillion by 2025, up from $4 trillion in 2012. The focus on spending will also shift from West to East, says the new report 'Capital project and infrastructure spending: Outlook to 2025'.

The majority of growth is expected to come from the emerging economies. China, which became the world's top spender on capital and infrastructure in 2009, will be a primary driver. “Emerging markets, especially China and other countries in Asia, without the burden of recovering from a financial crisis, will see much faster growth in infrastructure spending,” said Richard Abadie, global capital projects and infrastructure leader at PwC.

Developing economies currently account for nearly half of all infrastructure spending, and while mature markets will continue to grow, they will see their infrastructure spending shrink from nearly half of the global total today to about one-third by 2025.

Underlying this shift is accelerating urbanisation in many developing countries, which will result in spending growth in sectors such as water, power and transportation. Growing per capita income in emerging markets will also mean a larger middle class that will translate into infrastructure for manufacturing sectors that provide the raw materials for consumer goods and for more and better roads. However, though emerging economies represent the biggest opportunities going forward, CEOs are still apprehensive about the potential for slowdown in these regions. While emerging economies represent the biggest opportunities for infrastructure development and investment, CEOs worry almost as much about a slowdown in the emerging economies as they do about sluggish growth in the advanced economies.

Achieving this predicted growth decade will depend on whether emerging markets can provide the proper conditions for infrastructure development.

Besides the need for available capital, growth markets will need to reduce investor risk by establishing robust governance, a consistent regulatory framework, and political stability. Developing economies must also invest in training highly skilled and low-to-medium skilled workers to support design and construction activities.

Report: Capital project and infrastructure spending: Outlook to 2025