First bets on Alibaba retreat

Short sellers are making their first bets on a retreat in Alibaba Group a week after the company priced the world’s biggest-ever initial public offering.

Bears who profit from price declines have sold short 12.1m shares, or about 3.3% of Alibaba’s listed stock, data compiled by Bloomberg and Markit, a London-based provider of financial information showed.

The Hangzhou-based company, China’s biggest e-commerce operator, sold 368.1m shares in the IPO.

“Out of the gate we see high demand to borrow shares of Alibaba,” said Andrew Laird, a product specialist at Markit.

“This is a relatively small amount compared to the total shares outstanding but still significant considering the limited supply that is available to borrow following an IPO.”

Demand from investors seeking exposure to China’s e-commerce industry allowed the firm to raise $25bn (€19.6bn), surpassing the previous IPO record held by Agricultural Bank of China’s $22.1bn sale in 2010.

The stock has fallen three out of four days this week after rallying 38% on its first trading day, the biggest price increase for a new stock offering of at least $10bn, data compiled by Bloomberg show.

The interest rate for borrowing shares of Alibaba was 0.5%, down from an early cost of 8%, according to Markit. The average borrow fee for members of the S&P’&s 500 index is less than 0.5%.

Tapping securities on loan is the first step in a short sale, where a bearish trader borrows a stock and sells it, hoping to profit by replacing it at a lower price. “The rate has come down significantly and this is likely due to the fact that there are a lot of shares available to lend out,” Laird said yesterday.

There are 45.1m shares available to lend, Markit said. Prior to Alibaba’s IPO, four of the five largest firms to list on US exchanges, including Facebook and General Motors, plunged over 17% in the year after going public.