Now that Alibaba has filed the first required corporate documents related to its planned initial public offering, concerns about the Chinese e-commerce company’s corporate structure and governance are coming into focus.
Investors had their first chance to take a closer look at Alibaba’s style of disclosure, when the company—which values itself at more than $100 billion in the filing—presented the U.S. Securities and Exchange Commission with more than 2,000 pages worth of information.
Investors and analysts told The Wall Street Journal that they have found much of the financial information lacking, prompting them to question certain aspects of the company’s corporate structure and hesitate to get in line to buy shares.
Among the mysteries contained in the filing that the Journal zeroed in on: the ability of company founder Jack Ma and a group of 28 partners to nominate a majority of directors despite owning fewer shares than other major investors, includingYahoo. Alibaba, the Journal also noted, doesn’t name the partners individually and only says they are members of Alibaba’s management team or have roles in related companies.
Alipay, a separate company that Alibaba described as “important” to its operations, is also controlled by the company executives themselves, rather than the corporate entity, the Journal noted. Alibaba’s SEC filing does not contain information about Alipay’s finances, the Journal observed.
Investors are wary about buying into Alibaba because the company’s structure “still concentrates power into a few hands,” Tony Hsu, a Shanghai-based portfolio manager for U.S. hedge fund Dalton Investments, told the Journal.
Hsu told the Journal that he himself is bullish on Alibaba, though he added that “it’s a little surprising for a business of this scale not to provide more granular data.”
Another related governance issue is how Alibaba’s finances will be audited, and by whom.
Currently, Chinese affiliates of the Big Four accounting firms are suspended from auditing U.S.-traded clients for six months, but are appealing that U.S. court ruling, the Journal noted. The ruling was part of a broader dispute, the Journal reported, between the U.S. and China over U.S. regulators’ lack of access to documents related to Chinese audit clients. The SEC has often in recent years raised questions on the financial reports of Chinese companies listed in the U.S., the Journal noted.