Alibaba founders secure company equity-backed loans from global banks


Chinese billionaires Jack Ma and Joe Tsai have pledged part of their combined $ 35 billion stake in e-commerce group Alibaba in return for large loans from investment banks, the company’s documents show.

The stock pledges, made to banks such as UBS, Credit Suisse, Goldman Sachs and others, were taken by offshore companies controlling more than half of the two billionaires’ stakes in Alibaba, which totaled 5.8 % in December.

Equity pledging, whereby banks accept shares as collateral for loans while the borrower retains ownership of the shares, is risky and most US businesses limit its use by executives. Any forced sale of pledged shares can worsen a company’s stock price drop. This can be precipitated by margin calls, when borrowers have to repay loans from brokers or forgo stocks.

“You would like to know what the potential impact is if there was a forced sale,” Nigel Stevenson, analyst at Hong Kong-based research firm GMT Research, said of the practice of stock pledging.

But while American companies are required to disclose executives’ pledges of action – as Elon Musk did at Tesla, the electric car maker – the foreign groups listed there, like Alibaba, are not required to. do it.

Documents seen by the Financial Times did not disclose the amounts of Ma and Tsai’s pledges, but the couple have repeatedly turned to borrowing their shares since Alibaba’s U.S. listing. in 2014.

Ma and Tsai, Alibaba’s two largest individual shareholders, used the loans to unlock vast personal fortunes tied to the group’s shares.

Global banks have granted a wide variety of loans to Ma and Tsai. Tsai’s Gulfstream 650ER private jet is mortgaged to Credit Suisse. The Swiss bank, which brought Alibaba to the market, also provided credit in preparation for the IPO to an offshore shell company later linked to Ma’s purchase of a lavish house in the Peak District. from Hong Kong and a new plane of the same model as Tsai’s.

Alibaba said Ma “and its affiliates” currently have no outstanding loans secured by shares of Alibaba, while Tsai’s outstanding equity-backed loans were “easily manageable” with “loan ratios”. prudent value to be provided [a] substantial cushion against triggering a margin call ”.

The company said pledging shares for loans was part of “ordinary financial planning to provide liquidity and diversification without having to sell Alibaba shares.”

Ma stepped down as executive chairman of Alibaba in 2019, while Tsai remains executive vice chairman.

Offshore Company Web

Ma and Tsai’s interests in Alibaba are held primarily through five offshore companies: JC Properties, JSP Investment, Parufam, PMH Holding and APN Ltd.

APN made the largest known pledge of Alibaba shares with 400 million shares. But rather than in exchange for a loan, it was part of the guarantees given to SoftBank and Yahoo in Japan after Ma separated the payment unit of Alibaba Alipay – now part of its fintech group Ant – from the e-commerce company.

Ma’s wife, Cathy Ying Zhang, who took Singaporean citizenship, was instrumental in her relationship. Records show that two offshore holding companies of which Zhang is the sole director, JSP Investment and JC Properties, hold 60% of the couple’s stake in Alibaba.

In total, Zhang’s two holding companies for Alibaba shares have pledged more than a dozen assets to investment banks for loans to a network of offshore companies.

Alibaba holdings

In addition, Zhang is the sole shareholder of a Hong Kong company that Ma used to buy a chateau and vineyards in France and has power over the well-endowed Jack Ma philanthropic foundation, according to trade records. She also signed cheap loans from Goldman Sachs to Enbao Asset Management, Ma’s family office.

In a deal, an investment in a Chinese online real estate platform in 2015 that was orchestrated by Enbao, Ma used two offshore holding companies to bring in $ 20 million. One was BVI-based Rainbow Zone Enterprise, which contributed $ 10 million while taking a loan from Swiss bank UBS that was secured against unspecified securities pledged to the bank by JSP Investment.

One day in 2019, the couple created three shell companies, Miracle Orchid Investment, Rising Orchid Investment, and Winning Orchid Investment. Three months later, they received asset-backed loans from JSP Investment.

The records viewed by the FT clearly indicated that Alibaba’s U.S. deposit shares were pledged for loans from Morgan Stanley and Credit Suisse, while Goldman referred to the pledged U.S. deposit shares, and UBS has reported “securities” and other pledged assets.

Diamond Key Worldwide, based in BVI, another company controlled by Zhang, received four separate loans from UBS. Last year, the company’s Chinese subsidiary purchased a Rmb35 million ($ 5.4 million) piece of land in Hangzhou, where Alibaba is based, to develop it for educational purposes.

The story of the pledging of shares of Jack Ma and his wife Cathy Zhang and Joe Tsai

Free up liquidity without alarming the markets

Bankers say stock pledges are a common method for Chinese executives to raise funds without losing control of their companies or sending negative signals to the market by selling their stocks.

“It’s a very good deal for the banks, it feeds a lot of people,” said a former banker. “These founders are rich in assets but poor in cash.”

The documents show that much of the pledges of shares and other assets of Tsai, Ma and his wife Zhang remained in place in January, even though they began to sell their shares in Alibaba.

Ma and his wife have cashed about $ 11.4 billion in shares since Alibaba’s introduction in New York City, with the majority sold as of 2017. Her charitable foundation has sold an additional $ 4.1 billion. Tsai sold around $ 5.4 billion.

Alibaba said Ma and Tsai have owned “the company’s shares for 22 years and continue to hold significant stakes in Alibaba, which constitute the majority of their wealth.”

Former English teacher, Jack Ma is one of China’s best-known entrepreneurs, co-founder of Alibaba with Tsai in 1999 before building up a fortune estimated by Bloomberg at $ 49.9 billion.

By the end of last year, however, it largely faded from public view after Beijing began cracking down on Ant Group, the fintech Ma created by Alibaba in 2011.

Credit Suisse, Morgan Stanley, Goldman Sachs and UBS declined to comment.

Additional reporting by Hudson Lockett and Joe Leahy in Hong Kong


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