Why Sina Weibo, Alibaba’s US IPOs make complete sense

Two of China’s biggest online players are getting ready to launch IPOs in the US. On Friday, the Twitter-like microblogging service Sina Weibo filed for a US$500-million IPO while Alibaba kicked off the process for its own public offering, widely expected to be the biggest since Facebook’s in 2012.

As Reuters points out, Sina Weibo’s is just the latest in a long line of Chinese companies to file for an IPO in the States including search giant Baidu and its own parent company Sina Corp.

Unlike many of the other companies however, its product can be drastically affected by changing Chinese internet regulations. The company is profoundly aware of this and its filing points particularly to a regulation implemented last September which could see people found guilty of posting inflammatory or defamatory comments on the platform face up to three years in prison.

“The implementation of this newly promulgated judicial interpretation may have a significant and adverse effect on the traffic of our platform and discourage the creation of user-generated content,” the company says.

While this kind of content is officially enforced by the state, companies like Sina Weibo are expected to perform at least some kind of policing role on their platforms.

The government, it says “may require us to limit or eliminate the dissemination of such information on our platform. Failure to do so may subject us to liabilities and penalties and may even result in the temporary blockage or complete shutdown of our online operations,” it said.

It also warned that Beijing could potentially interfere with its encryption codes as all online ciphers are required to be handed over to the state.

“Because these regulations do not specify what constitutes a cipher code product, we are unsure as to whether or how they apply to us and the encryption software we utilize,” the company said in its prospectus.

Nonetheless investors appear hungry for stocks in Chinese companies and Sina Weibo’s IPO is expected to help boost its brand recognition outside of China.

Alibaba’s big American adventure

For a real taste of how big that hunger is though, it’s worth looking at a company that doesn’t face the same kind of worries as Weibo. Take Aliba for instance. After struggling to convince Hong Kong regulators to allow it to go public there, it’s getting ready for a US IPO that could see it raise as much as US$15-billion. According to Bloomberg, that could see the ecommerce giant valued at as much US$200-billion.

Based on market cap, that would make it the second largest internet company behind Google based on market capitalisation.

Speaking to Bloomberg, Duncan Clark, Beijing-based chairman of BDA China Ltd., which advises technology companies, says that the US offers a number of advantages for Chinese companies, including a greater depth of capital and more seasoned investors.

“In terms of the control issue, Jack and the management, it seems that the Hong Kong stock exchange wasn’t able to accommodate,” he said.

“This will make us a more global company and enhance the company’s transparency,” Alibaba said in the statement. “Should circumstances permit in the future, we will be constructive toward extending our public status in the China capital market.”