Alibaba IPO Said to Draw Orders From Largest Mutual Funds

At least six big institutional investors are poised to take substantial stakes in Alibaba Group Holding Ltd., people familiar with the matter said, as the company raised $21.8 billion in a record-breaking initial public offering.

Alibaba and shareholders including Yahoo! Inc. sold 320.1 million shares for $68 each, the company said yesterday, after offering them for $66 to $68. The sale -- which values Alibaba at $167.6 billion -- is already the largest by any company in the U.S. and has the potential to break the global record if additional shares are sold to underwriters.

Fidelity Investments, BlackRock Inc. and T. Rowe Price Group Inc. asked for some of the largest allocations, and will be among the company’s biggest new shareholders, the people said, asking not to be named because the information is still private. Wellington Management Co. and Putnam Investments LLC also requested shares in the Chinese Internet giant’s New York IPO, the people said. Waddell & Reed Financial Inc. also sought a stake, one person said.

Each of the firms requested more than $1 billion of shares, one of the people said. Alibaba, which has been marketing the deal since Sept. 8, made the support of big institutional investors a priority, said people familiar with the company’s plans. The company raised the top end of its fundraising target by only three percent -- less than some of its advisers had proposed, to attract mutual funds who will give it credibility and remain shareholders for the long term, the people said.

Appealing Valuation

Many investors have been attracted by Alibaba’s valuation, which comes at a discount to peers. At $68 a share, Alibaba has a market value of $167.6 billion, or 29 times estimates for earnings in the year through March 2015. Analysts expect Alibaba’s net income to rise more than 50 percent this fiscal year from the previous 12 months.

Larger investors also weighed risks including a structure that keeps control of the company in the hands of a group of insiders who hold a minority of shares. Like many Chinese companies listed overseas, Alibaba is using a legal arrangement that requires investors buy Alibaba through contracts instead of direct ownership. This so-called variable interest entity has the risk of being altered without the say of investors.

Bob Christie, a spokesman for Alibaba, declined to comment as did spokesmen at Wellington, Fidelity, BlackRock and Waddell & Reed. Representatives at T. Rowe and Putnam didn’t reply to requests for comment.

The shares will start trading today, listed on the New York Stock Exchange under the symbol BABA.