Alibaba I.P.O. ranks as world's biggest

Sep 22, 2014, 2:31 AM EDT
Alibaba Group signage is posted outside the New York Stock Exchange prior to the company's initial price offering (IPO) on September 19, 2014 in New York City.
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Alibaba Group Holding Ltd's initial public offering now ranks as the world's biggest in history at $25 billion, after the e-commerce giant and some of its shareholders sold additional shares. Reuters reports:

Overwhelming demand saw the IPO initially raise $21.8 billion and then send Alibaba's stock surging 38 percent in its debut on Friday. That prompted underwriters to exercise an option to sell an additional 48 million shares, a source with direct knowledge of the deal said.

The IPO surpassed the previous global record set by Agricultural Bank of China Ltd in 2010 when the bank raised $22.1 billion.

Under the option, Alibaba agreed to sell 26.1 million additional shares and Yahoo Inc 18.3 million, netting the two companies an extra $1.8 billion and $1.2 billion respectively.

The Alibaba story is so compelling that Wall Street raised $22 billion for the company. But under Chinese law, these shares could end up worthless. As The Wall Street Journal reports:

Alibaba and its investors are betting that Communist Party officials won't expropriate the company and its shareholders. Alibaba's mission is "to make it easy to do business anywhere."

Founder Jack Ma wrote in his letter to investors: "We want to help small businesses grow by solving their problems through Internet technology. We fight for the little guy."

By connecting China's small businesses to one another and to customers, the company is leading the country's march toward a consumer society.

Its online marketplaces bring to life Deng Xiaoping's rallying cry: "To get rich is glorious."

But Alibaba's smart business strategy and charismatic leadership come with a massive risk: It's a Chinese company operating under Chinese law, which does not recognize the ownership rights of its new shareholders. China bans foreigners from owning a majority interest in companies from what Beijing calls "strategic and emerging industries."

Chief among these is the Internet, which connects individuals and thus terrifies the Communist Party. To get around the law, Chinese Internet companies give shareholders rights to a "variable interest entity" instead of direct ownership. In Alibaba's case, shareholders own a piece of a she