Tags: Alibaba | Davidoff | Chinese | assets

NYT's Davidoff: Alibaba Shareholders Won't Own its Chinese Assets

By    |   Thursday, 08 May 2014 10:18 AM

Investors are all aflutter about Chinese Internet goliath Alibaba's upcoming initial public offering (IPO), but they may want to pay attention to the fine print.

Investors in the company won't lay claim to its Chinese assets, as Chinese law prohibits foreign ownership of such assets, writes New York Times columnist Steven Davidoff, a professor at Ohio State University's law school.

Alibaba will own its non-Chinese assets, but not much of its assets in China, which make up the bulk of the company.

Editor's Note:
Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

The company has a variable interest equity structure. That means U.S. investors won't own shares in Alibaba China, Davidoff explains.

Rather they will own a stake in Alibaba Group Holding, an entity based in the Cayman Islands.

Alibaba co-founders Jack Ma and Simon Xie will own the majority of Alibaba's Chinese assets. "The Cayman Islands company has contractual rights to the profits of Alibaba China, but it has no economic interest," he explains.

The structure "works for Jack Ma, but whether it works for investors remains to be seen," Davidoff states.

It's not even clear that the structure conforms to Chinese law, because it evades the prohibition against foreign investment, he writes.

In its prospectus, the firm states that if the structure is ruled illegal, then its business may be significantly harmed and substantial fines might be imposed.

"As investors contemplate putting billions into Alibaba, they may want to actually consider what that money is buying," Davidoff states.

Given investors' enthusiasm over the IPO, these inconvenient details may not dent demand for Alibaba shares.

"It's the biggest e-commerce growth story in the world," said Eugene Munster, an equity analyst at Piper Jaffray, tells The Washington Post. "That's why investors are so excited to get involved."

Alibaba is described as a combination of Amazon.com, eBay, PayPal and Google.

The firm has 231 million active users in China and 8 million active sellers, The Posted notes.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

© 2020 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
InvestingAnalysis
Investors are all aflutter about Chinese Internet goliath Alibaba's upcoming initial public offering (IPO), but they may want to pay attention to the fine print.
Alibaba, Davidoff, Chinese, assets
348
2014-18-08
Thursday, 08 May 2014 10:18 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved