Alibaba says founders' loans pose no risk as borrowings are easily manageable due to daily trading volume
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Jack Ma, the founder of one of the largest publicly traded Chinese technology companies, has settled all the equity financing that involved the use of his stake in Alibaba Group Holding since its 2014 initial public offering (IPO) in New York, according to a company statement.
Ma, whose Alibaba stake stood at 4.8 per cent as of July 2020, no longer has any loans collateralised with shares of the Hangzhou-based company, according to the statement.
Joe Tsai, an Alibaba co-founder with a 1.6 per cent stake in the company, who is also the chairman of Alibaba's wholly owned South China Morning Post, has collateralised loans that are "easily manageable in the context of Alibaba's market capitalisation and trading volume", the company said.
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"Over the past three months, Alibaba stock has a combined average daily trading volume of approximately US$4 billion on the New York Stock Exchange and Hong Kong stock exchange," according to the company's statement . "The loans have prudent loan-to-value ratios to provide substantial cushion against triggering a margin call."
Jack Ma, founder of Alibaba Group Holding, during the Tech for Good Summit in Paris in 2019. Photo: Reuters.
The statement was issued in response to a query by the Financial Times about collateralised loans by the two Alibaba founders and their affiliates.
"The fact that Jack and Joe borrowed from financial institutions using their Alibaba stock as collateral has been widely reported," the company said, pointing to a September 2015 article by Bloomberg.
Joe Tsai, co-founder of Alibaba Group Holding and chairman of the company's SCMP Publishers, at the newspaper's China Conference in Hong Kong in 2016. Photo: Nora Tam
Alibaba raised US$25 billion in New York in late 2014, followed by a HK$101 billion (US$13 billion) secondary offer five years later in Hong Kong, both record stock sales by a Chinese company in the two financial markets.
After the New York IPO, Ma and Tsai took personal loans, pledging their Alibaba shares as collateral, "in compliance with US securities laws," not unlike collateralised borrowings undertaken by other US corporate executives like Tesla's Elon Musk, and Oracle's Larry Ellison - a commonly held practice among US listed companies from Amazon to Walmart - Alibaba said.
The rationale for the loans amounts to "ordinary financial planning to provide liquidity and diversification without having to sell shares" in Alibaba, the company said.
"Share financing is very common for founders and senior executives who hold such a strong belief in the future growth potential of their companies," Alibaba said, reiterating a 2015 statement made in response to a Bloomberg article about the founders' collateralised loans. "This is prudent financial planning and management."
Ma and Tsai are the two biggest individual shareholders of Alibaba, but by no means the largest stake owners. Masayoshi Son's Softbank owned 24.85 per cent of Alibaba's Hong Kong-traded stock as of December 2020, while US investment funds currently hold 58.8 per cent of the company's New York-traded American Depositary Receipts (ADRs), according to Bloomberg data.
Ma retired as Alibaba's chairman in September 2019 on his 55th birthday, 12 months after announcing his plan to hand the company's reins to Daniel Zhang. Tsai remains Alibaba's executive vice-chairman and board member.
Ma, a former English teacher before establishing the world's largest e-commerce company, stepped down as the company's director a year later, in September 2020, and no longer holds any executive board position in the company.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
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