Sat, Jul 26, 2014 - Page 9 News List

In Alibaba, a bonanza for China’s top scions

The Alibaba Group prepares to announce its US$200 billion initial public offering amid fierce accusations of the deep political connections of its shareholders

By Michael Forsythe  /  NY Times News Service, HONG KONG

Illustration: Constance Chou

It was billed as the biggest private financing deal in the history of China.

In September 2012, the Alibaba Group announced that it had completed a US$7.6 billion deal to buy back half of Yahoo’s stake in it. The giant e-commerce company raised part of the money by selling shares to select investors, notably China’s sovereign wealth fund and three prominent Chinese investment firms.

What Alibaba did not mention was the deep political connections of the investment firms, Boyu Capital, Citic Capital Holdings and CDB Capital, the China Development Bank’s private investment arm.

Their senior executive ranks included sons or grandsons of the most powerful members of the ruling Communist Party, according to an analysis by The New York Times. Documents reviewed by The Times also show that a fourth investor bought Alibaba shares that month: New Horizon Capital, a private equity firm cofounded by the son of China’s prime minister at the time, Wen Jiabao (溫家寶). The new revelations only demonstrate the paucity of information about existing shareholders in what is poised to be the biggest initial public offering of this year.

As part of its regular filings for the offering, Alibaba disclosed the owners of about 70 percent of its shares. The group includes big foreign investors like Yahoo and the Japanese communications company SoftBank, as well as top executives such as Alibaba’s chairman Jack Ma (馬雲) and its vice chairman Joe Tsai (蔡崇信).

However, less is known about other shareholders whose sway may be significant even if their stakes are not. The situation raises questions about the transparency and operations of Alibaba, which is set to go public in the US in the coming months.

“It would take, at this point, a seismic effort to topple an Alibaba,” said Anne Stevenson-Yang (楊思安), a cofounder of the Beijing firm J Capital Research, which specializes in detailed analysis of Chinese companies. “They’ve got so many different allies across so many different ministries.”

Such politically connected investors will most likely reap a bonanza when Alibaba goes public, an offering that analysts estimate could value the company at more than US$200 billion. At that level, even a 1 percent stake would be worth US$2 billion. Already, their investments have performed spectacularly well.

New Horizon Capital reported that at the end of 2013 the value of its Alibaba stake stood at 3.73 times the cost of its initial investment, according to the documents —financial statements from one of New Horizon’s investors, the Cayman Islands-registered partnership Legacy Capital.

By that measure, the US$400 million investment in Alibaba made by a subsidiary of Boyu Capital gained more than US$1 billion in the same time period. Boyu counts former Chinese president Jiang Zemin’s (江澤民) Harvard-educated grandson Alvin Jiang (江志成) as a partner.

In a country of more than 1.3 billion people, the fact that four Chinese companies investing in Alibaba have had executives who are either sons or grandsons of the two dozen men who have, since 2002, served on the Politburo Standing Committee, the most elite group of leaders, illustrates how deeply China’s political class has attached itself to the highest echelons of finance. For example, The Times reported in 2012 that Wen’s relatives, including his son Winston Wen (溫雲松), who cofounded New Horizon Capital, controlled assets worth at least US$2.7 billion.

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