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Alibaba prospectus raises concerns on Ma's control

2014-08-14 14:58 Global Times/Agencies Web Editor: Qin Dexing

Alibaba Group Holdings amended its prospectus for a New York IPO, which raised concerns on the e-commerce giant's corporate governance, and is reportedly targeting an IPO for September 16.

'Against' the best practice

In Alibaba's latest filings issued with the US Securities and Exchange Commission (SEC) on Tuesday US time, it said founder and executive chairman Jack Ma Yun initiated a bonus program this year that allowed senior executives and Alibaba staff to acquire share rights at an affiliated company he controls.

Alibaba underscored the potential conflict of interest from Ma's role as Alibaba's executive chairman and as the controlling shareholder at the company which holds Alibaba's affiliated Alipay payment business.

"If conflicts arise," Alibaba said in its amended filing, "such conflicts may not be resolved in our favor."

Alibaba's CEO Jonathan Lu, chief people officer Lucy Peng, and chief risk officer Shao Xiaofeng are among 20 senior executives who have benefited from the bonus program, taking share rights which provide the holder with the economic benefits of the stock, company registration documents show.

All 20, along with Ma, are members of the Alibaba Partnership, the 27-member group which will have the exclusive right to nominate a majority of Alibaba's board of directors, documents show.

A bonus scheme granting employees at a listed company shares in an unlisted affiliate doesn't raise any legal concerns, but it is unusual for a firm to allow an executive to independently determine compensation, corporate governance experts say.

The scheme potentially further separates Alibaba investors from voting control of the company, said Charles Elson, director at the Center for Corporate Governance at the University of Delaware. "Public shareholders are going to put up lots of capital, but get very little back in terms of control."

The rewards program, which Ma intends to continue using, may also deepen the 49-year-old executive chairman's control of Alibaba's executive management, and allow him to further influence how the company's board is selected.

"Alibaba is doing many things that go against what is considered best practice in corporate governance," said Paul Gillis, an accounting professor at Peking University's Guanghua School of Management. "These kinds of structures can be dangerous in a large organization because they lack transparency."

Financial services revamp

In Alibaba's latest filing, it also said that it agreed to sell its small and medium enterprise loan business for $518 million in cash to Alipay's parent, the Small and Micro Financial Services Company.

Alibaba's 20 executives acquired about 42 percent of Small and Micro Financial Services' shareholding rights through participation in Hangzhou Junao Equity Investment Partnership, an entity registered late last year which is controlled by Ma through a separate unit, Hangzhou Yunbo Investment Consultancy Ltd.

As of March, the Alibaba executives agreed to pay 921.3 million yuan ($149 million) for the share rights, company registration documents show. The rest of Small and Micro Financial Services was -recently transferred to Hangzhou Junhan Investment Partnership, another entity controlled by Ma, Alibaba said in its filings.

Ma's own stake in Small and Micro Financial Services would be "reduced over time" to equal his 8.9 percent shareholding in Alibaba Group, with the share reduction to take place over the next 3 to 5 years, Alibaba said.

While Alibaba isn't obliged to pay for the awards, and the Alibaba founder pledged not to receive "any economic benefit" from the reduction in his holdings in Small and Micro Financial Services, the company will record future related costs, it said.

Debut likely in September

Alibaba is targeting a trading debut on September 16, Bloomberg reported on Wednesday, citing unnamed sources.

The e-commerce juggernaut is weighing a plan to start marketing the share sale to investors on September 3 with management traveling across Asia, Europe and the US, Bloomberg reported.

Alibaba declined to comment when reached by the Global Times.

The company will divide executives into two teams, which will result in 100 meetings in cities including Hong Kong, London and Singapore in two weeks, Bloomberg said.

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