Malaysia's Khazanah to gain US$1bil from investment in China's Alibaba

PETALING JAYA: A little-known investment by Khazanah Nasional Bhd in Alibaba Group in 2012 has paid off.

Khazanah’s investment in the e-commerce giant from China is estimated to be valued at between US$1bil and US$1.2bil (RM3.22bil and RM3.86bil), a between four and five-fold increase of its initial US$250mil investment.

Its investment, although only small in comparison with the size of the technology stock’s valuation estimated at between US$160bil and US$170bil, will provide a handsome windfall should the state investment unit decide to divest upon the listing of Alibaba Group Holding Ltd in the United States.

The listing of Alibaba has created excitement in the market and has been described as the world’s largest initial public offering (IPO) thus far.

A source said Khazanah was among the Asian sovereign funds that had invested in Alibaba less than three years ago, having taken up some preferred shares alongside other international funds.

The US$1bil to US$1.2bil estimated gains are based on the forecast valuation of Alibaba of between US$160bil and US$170bil upon its IPO.

“The investment in Alibaba is one of the biggest pay-offs from Khazanah’s China office. It came to them due to their presence there. If Khazanah did not have an office there, it would not have happened,” said a source.

The value creation from the investment in Alibaba is expected to be included in the Khazanah Annual Review come January 2015.

With the intention to list the group in the United States, Alibaba had, in 2012, made a private offering of US$1.7bil worth of convertible preferred shares to a select group of investors that included sovereign wealth funds, Asian hedge funds, one of the banks that sold the deal and more. Khazanah is said to be one of the takers.

“The offer was also open to some high net-worth individuals from Malaysia who did not take it up. They did not have the appetite,” said a source.

It was reported that funds that took up the preferred shares were Hong Kong multi-billion hedge funds Janchor Partners Ltd and Myriad Asset Management Ltd, US mutual fund giant Fidelity Investments’ affiliate, Viking Global Investors, and Singapore Government funds GIC and Temasek Holdings Pte Ltd.

The preferred shares will automatically be converted into common shares at US$18.50 apiece at the IPO, giving the holders around a collective 3.9% stake in Alibaba, valued at over US$6bil. At that point, Alibaba was valued at around US$40bil.

Prior to the offer of the preferred shares, the group had privatised its e-commerce business,, from the Hong Kong stock exchange in May 2012. Two days ago, Alibaba raised its IPO price range for its shares to between US$66 and US$68 per share from the earlier expected price range of US$60 to US$66 per share in response to the demand for its IPO shares.

At the highest of the revised IPO prices, US$68, Alibaba is expected to raise more than US$25bil, becoming the largest technology listing in the United States yet. At that price, the group will be valued at US$168bil.

Alibaba’s IPO on the New York Stock Exchange is targeted for this Friday.

Western media has reported mixed investor views on the IPO, with some wary of the governance issues that could arise in the Chinese stock being listed in the United States, while some are bullish about Alibaba’s growth potential as a technology staple for Chinese consumers and in international markets.

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