By Liana B. Baker, Jessica Toonkel and Deepa Seetharaman
(Reuters) - Big institutional investors like Blackrock will likely get the bulk of roughly $22 billion worth of Alibaba Group Holdings shares being sold in an initial public offering set to price later on Thursday, people familiar with the situation said.
By restricting the allocation so narrowly to large institutions, the underwriters on the IPO hope to prevent volatile trading of the Chinese e-commerce company's shares after expected trading begins Friday and in the weeks to come, the sources said.
Alibaba, which handles more transactions than Amazon.com Inc and eBay Inc combined, is expected to price within the $66 to $68 per American depository share range, mutual fund company Fidelity said on its website. The final price has not yet been determined.
The sources said banks managing the offering plan to allocate the bulk of the heavily anticipated offering - expected to be one of the world's largest-ever - to a group of 25 to 50 large institutions.
The IPO represents a milestone for the company founded 15 years ago in former English teacher Jack Ma's one bedroom apartment and which has drawn a plethora of investors lured by its surging revenue growth and solid profit margins.
Alibaba is responsible for 80 percent of online sales in the world's second-largest economy, and works with a number of businesses there including consumer online marketplace Taobao and payment service Alipay.
An Ipsos poll conducted for Thomson Reuters found that 88 percent of Americans had never heard of the Chinese e-commerce company. But that hasn't sapped enthusiasm among multiple large institutions, including Blackrock, which are angling for allocations of at least $1 billion in shares, according to the sources.
"For this kind of large deal it’s very common to allocate the bulk of shares to the large institutionals who will hold it for the long run," said Josef Schuster, founder of Chicago-based IPOX Schuster LLC, which helps create index funds for IPOs.
Investors, keen to buy into China's rapid growth and evolving Internet sector, have been clamoring to get shares since top executives at Alibaba, including Ma, kicked off the road show last week.
“It was one of the more impressive IPO presentations,” said Jerry Jordan, manager of the $48 million Jordan Opportunity Fund. “I didn’t realize just quite how successful they are."
Alibaba's revenue surged 46 percent in the April to June quarter on strong gains in its mobile business, with net income attributable to its shareholders nearly tripling to $1.99 billion, or 84 cents a share.
At the top end of its range, the IPO would raise almost $22 billion, but if underwriters exercise an option to sell more shares, Alibaba's market debut will top Agricultural Bank of China Ltd's record $22.1 billion listing in 2010.
Given the size of the offering and the interest it has attracted, the company, even after allocating most of the offering to big fund companies and other institutions, may not be able to avoid volatile trading of its shares.
Concerns that an opaque corporate governance structure and Ma's outside investments will stymie minority investors' rights could also end up capping short-term gains.
ROOM FOR A FIRST-DAY 'POP'?
“Rarely in history has there been an IPO of this size for a company that we know less about,” Senator Bob Casey, Democrat of Pennsylvania, said in a statement on Wednesday. “I continue to be concerned about the level of transparency from Chinese firms listing in our markets."
In addition, a Reuters analysis found that IPO mega-deals have tended to suffer weak performance after their customary first-day price rallies.
Despite the possibility for longer-term turbulence, investors and analysts are betting that there is still room for a substantial first-day jump in the shares.
One investor said that the IPO's underwriters, who include Credit Suisse Group AG, Citigroup Inc and Goldman Sachs Group Inc, were hoping for a first day "pop" of 10 to 15 percent.
In a note Thursday, analysts at Morningstar said the shares are more fairly valued at $90 each.
Other underwriters include Morgan Stanley and JPMorgan Chase & Co, with Rothschild, which does not have underwriting operations, advising Alibaba on the deal.
(Reporting by Liana Baker, Jessica Toonkel and Deepa Seetharaman; Writing by David Gaffen and Christian Plumb; Editing by Bernard Orr)