BAF -FIA Assignment 4 (Final individual assignment) Questions | UOM

Assignment Questions: 

The assignment is based on the following four documents: 

• A case study: 'The Alibaba IPO' 
• Alibaba IPO prospectus 
• Alibaba annual report 2017 
• An Excel file containing daily share price of Alibaba for the first three years after its IPO (BABA share price)

Read the above documents and the IPO book (e-copy available on Blackboard) to answer the following questions. You may wish to use external references/material from credible sources (such as financial press, journal articles): 

(i) An IPO marks a strategic milestone for a company.

1. Explain the benefits and drawbacks of going public. 
2. What may have motivated Alibaba to go public?

(ii) Alibaba must have had several avenues to raise funds. Why was it relatively easier for Alibaba to raise capital from the stock markets over debt? Why did Alibaba choose to list on New York Stock Exchange (NYSE)?

iii) On page 71 of the IPO prospectus, Alibaba provides information on the 'Use of proceeds'. What is your view on how Alibaba planned to use the capital raised from the IPO? Should Alibaba invest IPO proceeds in debt instruments or bank deposits?

(iv) Is it correct to state that Alibaba raised $21.77 billion through its IPO? Why or why not?
(v) Alibaba used a Variable Interest Entity (VIE) structure to list on NYSE. Alibaba also operates through an 'Alibaba partnership'. Explain VIE and Alibaba partnership. How would new investors be affected by these setups of Alibaba?
(vi) What are lockup agreements? Describe the lockup agreement of the Alibaba IPO. 
(vii) What is an IPO over-allotment (Greenshoe) option? Describe Alibaba's over- allotment option. Did the Alibaba IPO underwriters exercise the over-allotment option?

viii) The underwriting investment bank takes on a central role in the IPO process. 

1. What are the key tasks executed by the underwriter? 
2. What are primary considerations when selecting an underwriter? 
3. Often, multiple underwriters are involved. In the case of Alibaba, a syndicate of 35 underwriters was involved in the IPO. What are the main motivations for syndication? 
4. How much compensation was paid to the underwriters of Alibaba? Do you think it is comparable to the average compensation paid to underwriters in US IPOs? 
5.  What do you understand by 'price-stabilization' activities conducted by the underwriter(s)? Do you think the underwriters were involved in price- stabilization of the Alibaba IPO?

(ix) Without conducting a formal valuation analysis and based on the information given in the case study, the IPO prospectus and external resources (such as media coverage at the time of the IPO), discuss the pricing of the Alibaba IPO. Would you have invested in Alibaba at the issue price of $68?