Understanding China, One Blog at a Time

An American in China

Stock Fraud Alert- Read Before Buying Alibaba Stock

Posted by w_thames_the_d on September 17, 2014


China’s Alibaba is going to IPO in the USA. Simply put, there are too many unknowns and the company poses a significant investment risk.

Read before buying…
‘With Alibaba set to have the biggest IPO in history, investors around the world are looking to handicap the mysterious and largely misunderstood Chinese Internet company.

Speaking to CNN Money’s Erin Burnett yesterday, PayPal co-founder, early Facebook, LinkedIn, Palantir, and Yammer investor, and former PandoMonthly guest Peter Thiel expressed some not so enthusiastic views on the company.

Asked whether he would invest in the company’s public stock, Thiel says, “I would not, although I think it will probably go up some. They’re probably going to price it in such a way that it gets some sort of a pop.”

But it’s not the return potential that seemingly gives Thiel pause. It’s the uncertainty around Alibaba’s connection to (and dependency on) the Chinese government.

“I do think that the Chinese Internet has been largely off limits to Western investors, it’s been firewalled off,” Thiel says. “If you look at the world from the perspective of companies like Facebook or Google, places like Saudi Arabia and Iran are way more tolerant than China. You can get on Facebook in Saudi Arabia and you can’t get on it in China. So China is in this very weird category of its own.”

The Founders Fund and Clarium Capital founder goes on to say that Alibaba’s fate is tied to its ability to appease Chinese state officials.

“Alibaba is sort of this protected Chinese company – it will do well, but it is fundamentally a political entity that is somehow very deeply connected with the Chinese government,” Thiel says. “You’ll get a pop and you’ll do well if it continues to stay in the good graces of the Chinese government, but it’s fundamentally a political investment.”

Politics and investment are two categories that rarely overlap nicely. And, China in particular, has proven itself unpredictable and parochial in the way it manages the Internet. It’s no doubt in China’s best interest, both economically and politically, to see its homegrown corporate giant succeed on a global stage. But that notwithstanding, there remains the very valid concern this patriarch could one day impede Alibaba’s growth either domestically or abroad without warning or recourse. There are also concerns around accounting irregularities and loose corporate governance that have been raised by countless other Chinese company IPOs.

These are all issues that public company shareholders will need to think long and hard about before deciding to put their faith in Alibaba’s growth engine. For Thiel’s money, it’s a bet not worth making.

Link

http://pando.com/2014/09/17/thiel-alibaba-is-fundamentally-a-political-investment-that-i-wouldnt-make/

Alibaba’s Link to Elite Military Family Is Etched in Stone

Sep 15, 2014 – 06:44 GMT

HONG KONG — Perched on a steep hillside in Changshou township lies the modest family tomb of a military dynasty, overgrown with tall grass and lined with cheap white tiles. Carved in an ancestral tablet that records the living as well as the dead is the name of Zhang Zhen, the family patriarch, who turns 100 next month and was one of the highest-ranking generals in the People’s … (continue reading)

Link

http://fda.einnews.com/article__detail/223831118?lcode=8DWPqPuUsDVNDakfEIxsCA%3D%3D

More on Alibaba and its connection to communist party members and the Chinese military

‘HONG KONG — Perched on a steep hillside in Changshou township lies the modest family tomb of a military dynasty, overgrown with tall grass and lined with cheap white tiles.

Carved in an ancestral tablet that records the living as well as the dead is the name of Zhang Zhen, the family patriarch, who turns 100 next month and was one of the highest-ranking generals in the People’s Liberation Army. Below are his sons. One of them has the job of making sure the soldiers controlling China’s nuclear weapons stay loyal to the Communist Party. Another, Zhang Lianyang, was a general before venturing into business and is listed along with his wife, Chen Xiaoying.

The couple appears elsewhere together: on the corporate rolls of Citic 21CN, the telemarketing and pharmaceutical data business now controlled by the Chinese e-commerce giant Alibaba Group and Yunfeng Capital, a private equity company owned in part by Alibaba’s chairman, Jack Ma. Ms. Chen is Citic 21CN’s executive vice chairwoman, and Mr. Zhang was a director through April.

Alibaba has been one of the big success stories in China, a dominant private company in a country where state-owned enterprises typically command the heights of the economy. Its initial public offering, expected this week, could be the largest debut ever for an Internet company in the United States.

Alibaba’s acquisition of Citic 21CN, which was announced in January, provides an example of how the rapid growth of the private sector is also benefiting the country’s political elite, the so-called princelings, or relatives of high-ranking officials. Since Alibaba announced that it would buy a controlling stake in Citic 21CN for about $170 million, the pharmaceutical data company’s stock has risen more than sevenfold. As a result, Ms. Chen’s shares have soared in value by about $500 million.

That windfall has been previously reported. But the familial connections, traced to the stone tablet in Changshou, are largely unknown to the general public.

There is no evidence that Alibaba was aware of such connections. The company previously said it bought Citic 21CN for its “vast pool of pharmaceutical product data,” as part of an effort to build out technology standards for medical and health information. It was a “pure business decision,” according to a person with knowledge of the deal who was not authorized to talk publicly.

Although Alibaba declined to comment for this article, citing regulatory restrictions on public statements ahead of a public offering, the company has said it relies on the market — not political connections — to drive its business.

“To those outsiders who stress companies’ various ‘backgrounds,’ we didn’t have them before, we don’t have them now, and in the future we won’t need them!” the company said in a statement in July after a report that several investment companies tied to the sons and grandsons of senior Communist Party leaders owned stakes in Alibaba, including New Horizon Capital, whose founders include the son of former Prime Minister Wen Jiabao.

Ms. Chen did not respond to repeated requests for an interview made by fax, phone and visits to the company’s Hong Kong and Beijing offices.

Link

http://dealbook.nytimes.com/2014/09/14/alibabas-link-to-elite-military-family-is-etched-in-stone/

This is scary. The people running Alibaba can take the money and run, leaving us holding the bag.

http://online.wsj.com/articles/alibaba-ipo-gives-insiders-rare-chance-to-sell-early-1410999108?utm_source=The+Sinocism+China+Newsletter&utm_campaign=b44c411119-Sinocism09_18_14&utm_medium=email&utm_term=0_171f237867-b44c411119-29607949&mc_cid=b44c411119&mc_eid=f260e9635d

SEC’s Alibaba Structure Review Inadequate, Senator Says

Regulators haven’t done enough to protect investors from a risky corporate structure Chinese companies including Alibaba Group Holding Ltd are using to go public, U.S. Senator Robert Casey, said in a letter to the Securities and Exchange Commission.

Casey, a Pennsylvania Democrat who serves on the Senate Finance Committee, wrote that he was dissatisfied by the SEC’s assurances that it has adequately reviewed the corporate structure of Alibaba and the risks to U.S. investors who buy its shares.

Alibaba is scheduled to begin trading on Sept. 19, in a deal valued at $21.8 billion, which could make it the largest IPO in history. While the SEC hasn’t yet publicly cleared the offering, it has given no indication it will stand in the way.

“I remain concerned about the dangers that these structures pose,” Casey wrote. “I am specifically concerned that improved disclosures alone may be insufficient to address these risks.”

Casey first raised his concerns in a July 8 letter to SEC Chair Mary Jo White. In a response dated Sept. 11, White spelled out the steps the commission staff has taken to protect U.S. investors from Chinese Internet companies’ use of the controversial organizational format.

SEC Assent

Known as a variable interest entity, or VIE, the setup allows Chinese companies to dodge a home-country prohibition against foreign investment in key industries, including the Internet and telecommunications. More than 200 other Chinese companies, including the major Internet firms, used the device to go public on American exchanges, Casey wrote.

The SEC has assented to the same VIE structure in those public offerings. The process is part of a staff review that generally doesn’t involve any of the agency’s presidentially appointed commissioners. It isn’t designed to judge the merits of the offering, only to ensure investors are alerted to all risks.

The SEC has no special procedures for high-value or high-profile IPOs, current and former SEC employees have said. Like other companies’ offerings, Alibaba’s filings have been vetted by a securities lawyer and an accountant in the agency’s corporation finance division.

‘Declared Effective’

Before trading begins, the SEC will give public notice that it has approved, or “declared effective,” the company’s documents, which together are known as a registration statement.

The SEC should consider making a formal determination that VIEs pose a “significant risk,” echoing a judgment regulators made about an earlier wave of public listings by Chinese companies relying on so-called “reverse mergers,” Casey said in his letter.

Casey also is seeking detailed information about any potential enforcement investigations the commission is performing “on the ground” in China and details of SEC oversight of outside advisers who “facilitate VIE listings by Chinese firms.”

The VIE structure also drew fire in June from the U.S.- China Security Review Commission, a congressional panel charged with examining the national security implications of the countries’ ties, which equated the device to an “intricate ruse” that leaves a small cadre of executives in control while giving American shareholders few rights.

Link

http://www.bloomberg.com/news/2014-09-17/sec-s-alibaba-structure-review-inadequate-senator-says.html?utm_source=The+Sinocism+China+Newsletter&utm_campaign=b44c411119-Sinocism09_18_14&utm_medium=email&utm_term=0_171f237867-b44c411119-29607949&mc_cid=b44c411119&mc_eid=f260e9635d

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