Yahoo shares seen rallying on Alibaba IPO
Bloomberg News
Yahoo! Inc. may rise 65 percent by the end of the year after Chinese e-commerce giant Alibaba Group Holding Ltd. goes public later this week, according to bets by structured-products buyers.
Investors are piling into call warrant and knock-out certificates that pay a return if Yahoo's share price climbs above a pre-defined level. Some are betting Yahoo will increase to as much as $70 by Dec. 29, according to data compiled by Bloomberg. The stock rose to an eight-year high of $42.88 last week and closed at $42.71 yesterday in New York.
"At the moment, Yahoo is one of the most common U.S.-based underlyings trading in Germany," said Heiko Geiger, the Frankfurt-based head of public distribution of structured products for Germany and Austria at Bank Vontobel Europe AG. "We hadn't seen it for months."
Yahoo plans to sell a portion of its 22.4 percent stake in Alibaba after the Hangzhou-based company's initial public offering on Sept. 19, which would be one of the biggest in history at an estimated $21.8 billion. Yahoo, based in Sunnyvale, California, said in July it planned to keep a bigger stake in Alibaba after the IPO than it originally projected, and would return at least half of the cash raised to shareholders.
Call warrants are financial instruments that give the holder the right to buy the underlying share at a specific price within a certain period. Knock-out warrants have an additional feature: if the underlying share trades at or past a pre-set level, the security loses all of its value and expires.
More than 92 percent of trading of warrants and knock-outs tied to Yahoo since the beginning of September were calls, according to data from BNP Paribas SA, which track over-the- counter and exchange transactions in Germany, the largest market worldwide for such products.
Banks such as UBS AG, Deutsche Bank AG, Vontobel and BNP Paribas have been issuing warrants and knock-out products tied to Yahoo shares since the beginning of September, data compiled by Bloomberg show. They're now among the top 20 most-traded products in Germany this month compared with 80th this year up to the end of August, said Gregoire Toublanc, head of exchange- traded solutions for Germany and Austria at BNP Paribas in Frankfurt.
"Demand has been picking up since the end of August," said Toublanc. "We are seeing around 600 trades per day now on Yahoo, up from 100 earlier this year."
Interest in the IPO has been so strong that Alibaba boosted the offer price for the shares to between $66 and $68 apiece, according to a regulatory filing. That compares with an initial range of $60 to $66 each.
Proxy Trading
"The IPO has been so popular that there are not many shares left and people are looking at proxies to get in," Geiger said. "We are starting to receive clients' requests for products in Alibaba as soon as it starts trading" on Sept. 19.
Other securities that give exposure to the IPO are also emerging. Bank of America Corp. is offering investors the chance to bet on Alibaba's performance through a product that uses the Chinese company's largest shareholder, Tokyo-based SoftBank Corp., as a basis for approximating its valuation.
A China-traded index of seven companies that either sold stakes to Alibaba or have partnerships with it, rallied to the highest level since May 2008 yesterday.
To contact the reporter on this story: Luca Casiraghi in London at lcasiraghibloomberg.net To contact the editors responsible for this story: Shelley Smith at ssmith118bloomberg.net Chapin Wright, Jennifer Joan Lee