Uncertainty obstructs Alibaba IPO

Since its B2B subsidiary Alibaba.com delisted on the Hong Kong Stock Exchange (HKEx) in June 2012, Alibaba Group Holding Ltd.'s overall listing has become one of the most eagerly awaited Internet debuts since Facebook listed in 2012.

The industry expects Alibaba's IPO to be bigger than Facebook's, which would make it the third-biggest Internet company behind Google Inc. and Amazon.com Inc. based on market capitalization.

But Alibaba has yet to determine where it will list, making an IPO before the end of the year highly unlikely.

As the world's largest e-commerce trading platform, Alibaba should have been a coveted target for major stock exchanges around the world; but it has twice been blocked from listing on the HKEx. Despite its excellent performance, disputes over control rights and an extremely complex corporate structure have delayed its listing and sparked widespread concern and discussion.

Before attempting an IPO, Alibaba CEO Jack Ma tried to resolve long-standing control issues by buying back shares from major shareholder Yahoo Inc. Yahoo agreed to sell, but it raised a number of conditions, one of which was qualified IPO, i.e., Alibaba's valuation must be at least US$ 73.5 billion.

Alibaba would complete its listing under Alibaba Group Holding Ltd., which is a company registered in the Cayman Islands. Since the China Securities Regulatory Commission requires companies listed in Chinese mainland to be based in the mainland, Alibaba could only choose Hong Kong or the United States as its place of listing.

For Jack Ma, realizing a qualified IPO according to its agreement with Yahoo is not a difficult task; the difficulty is how to successfully list while ensuring his control of the company. Hong Kong's listing rules uphold the principle of giving priority to the public's interest and do not allow listed companies to give different degrees of voting power to shareholders with different classes. But it is precisely this way that Ma, the founder and small shareholder holding 7.43 percent, could maintain control over Alibaba.

So far, the HKEx has twice rejected Alibaba's requests to list, forcing Ma to make a difficult choice: if a listing means losing control, then all his previous efforts, including the equity change of Alipay, would be meaningless; on the same note, if Alibaba is unable to achieve a high valuation, Ma would have a hard time explaining himself to the previous investors and founders of the company.

If Alibaba turns to the United States for its IPO, the company will need to prepare for considerable scrutiny; if it opts to list in Hong Kong as planned previously, Ma will need to lower his expectations and assume more risk.

In addition, with its 25 divisions, two business groups, and nearly 200 subsidiaries and affiliates, Alibaba has the most complicated structure and related party transactions of any Internet company in China. The complex organizational structure interwoven with related party transactions may be the biggest stumbling block to the group's listing.

"The capital market won't warm up to a company it can't understand," said Ge Jia, an independent Internet analyst. Shareholders will worry Ma will be able to adjust the business or performance of the company at his discretion without informing shareholders.

Besides its own listing, Ma also signed an agreement with Yahoo and Softbank to make up for their loss in the equity change of Alipay, promising a one-time cash return worth 37.5 percent of its IPO market value. This means Ma has to push forward Alipay's independent listing as soon as possible. In the future, Ma also hopes to realize a grand strategy of listings for the group's big data and logistics companies.

Time is slowly ticking away.