Banks cash in on record Alibaba IPO with fees going through the roof

Deutsche Bank, Goldman Sachs, Credit Suisse, Morgan Stanley and JPMorgan Chase sharing $300 million in fees from monster IPO

(AFP/Getty)

The float of Chinese ecommerce giant Alibaba did not just land its founder and chairman Jack Ma a huge windfall - the banks behind the record-breaking listing have also made a killing.

The underwriters of the company’s flotation in New York last Friday are sharing more than $300 million in fees between them, according to a stock market filing yesterday.

The lead banks - Deutsche Bank, Goldman Sachs, Credit Suisse, Morgan Stanley and JPMorgan Chase - will each get 15.7 per cent of the $300.4m total, meaning they land more than $47m each, while Citigroup will take 7.9 per cent - nearly $24m. The other underwriters will receive 1 per cent or less.

The fees bonanza comes after the underwriters decided to take an option to sell an extra 48 million shares, following a first day of trading for Alibaba in which shares traded more than a third higher than their listing price.

The decision by the banks to exercise the so-called “green shoe” option meant the initial $21.8bn raised by the flotation rose to $25bn, putting it above the previous record of $22.1bn set by the Agricultural Bank of China in 2010.

Of the 48 million extra shares, 26.1 million were sold by the company itself, giving it an extra $1.8bn. Meanwhile, US tech giant Yahoo - which had a roughly 24 per cent stake in Alibaba before the flotation - sold a further 18.3 million shares, worth more than $1.2bn.

Ma sold an extra 2.7 million shares while co-founder Joe Tsai got rid of just over 900,000 extra shares. The former school teacher, who founded the company with 17 friends in 1999 from a one-bedroom apartment, now has a paper fortune of more than $14 billion.

Another company that has landed the jackpot on the listing is tech buyout giant Silver Lake Management. The firm has invested more than $800 million into Alibaba, according to Bloomberg, meaning that the soaring share price has given it a paper gain of roughly $4.6 billion.

After months of anticipation were followed by an investor roadshow that lasted for a fortnight and traversed the globe, shares in the float were finally priced last week at $68 each. However, the stock started trading on Friday more than a third higher, at $92.70-a-share, before closing the day at $93.89.

“I don’t want disappointed shareholders,” said Ma, speaking at the time at the New York Stock Exchange, where he watched employees ring the opening bell. “I want to make sure they make money.”

There were some signs of profit taking today as shares dropped nearly 4 per cent in early trading to $90.20.