Alibaba Group Holding Ltd (阿里巴巴), the Chinese e-commerce giant, yesterday said that it had discovered suspicious accounting at a Hong Kong film company that just two months ago it paid about US$800 million to control.
The disclosure could raise concerns that Alibaba, preparing what might be the biggest initial public offering (IPO) in US history, could be biting off more than it can chew in a spree of acquisitions.
The film company, Alibaba Pictures Group (阿里巴巴影業集團), formerly ChinaVision Media Group (文化中國傳播集團), yesterday said that it had discovered “possible non-compliant accounting treatments” involving insufficient provision for impairments on assets, or write-downs, which were not identified.
Photo: Bloomberg
The company added that it would miss an Aug. 31 deadline to release its earnings for the first half of this year and that its shares would be suspended from trading until its audit committee could complete an inquiry.
The accounting issues at Alibaba Pictures could lead to questions about whether Alibaba, which analysts expect could raise as much as US$20 billion in a New York IPO as early as next month, has been carrying out sufficient due diligence as it vets potential takeover targets.
For example, a deal in June to pay nearly US$200 million for a 50 percent stake in Guangzhou Evergrande Football Club (廣州恆大), a Chinese soccer team, was wrapped up in a matter of days after Alibaba’s executive chairman Jack Ma (馬雲) agreed to the investment while having drinks with Evergrande’s owner, a billionaire real-estate developer.
Alibaba agreed in March to purchase 60 percent of ChinaVision, which produces and distributes films and television programs in China, for HK$6.24 billion (US$805 million). The deal was completed in June. Alibaba renamed the company Alibaba Pictures and installed its own board of directors.
Last month, Alibaba Pictures issued a profit warning, saying that because of a drop in revenue, it expected to book a substantial loss for the first half of this year, compared with a profit of US$18 million seen for the same period last year.
The film unit also announced plans to work with respected Hong Kong director Wong Kar-wai (王家衛). Alibaba yesterday issued a vote of confidence in the film unit, describing it as the “flagship company” in its growing entertainment business.
Alibaba “fully supports the new management of Ali Pictures as they thoroughly review and rectify the possible financial noncompliance they have found with the former ChinaVision,” an Alibaba spokeswoman said in an e-mailed statement. “The new management team has a firm commitment to transparency, good corporate governance and investor protection, and the actions they have taken are consistent with this commitment.”
Alibaba Pictures said the potential accounting issues had been discovered by its new management as part of “an initial review of the company’s financial and business affairs.”
“The board’s audit committee has therefore begun a further inquiry into the matters concerned, in accordance with an action plan approved by the board to determine the cause, impact and extent of the relevant issues,” the film unit said. “It is currently uncertain how long the further inquiry will take.”
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