Carefree days for internet giant Alibaba are over

Carefree days for internet giant Alibaba are over

For the first time since its spectacular IPO, Chinese internet giant Alibaba is facing some headwind. Questions are being asked about breaches in Taiwan, China and possibly elsewhere as well - often because of the group's flotation.

Leave Taiwan in the next 6 months?

The government in Taiwan has asked Alibaba to leave the country in the next 6 months as it has apparently violated an array of local investment rules. One such breach is that the company came to Taiwan through an intermediate holding which has never been given permission to become active in Taiwan.

 

According to several observers, Taiwan is picking a bone with Beijing through Alibaba, as China has never recognized the former province as a sovereign state. It is unclear whether Alibaba will ever get a new permit.

 

Controversial property structure soon outlawed?

Alibaba is also facing criticism in its home country: there were bribery accusations and the Chinese government is preparing a bill to force Alibaba (and other Chinese companies) to change their property structure.

 

The Chinese government prohibits Chinese companies to attract foreign capital in specific branches (like media, telecom and the internet branch), which the Chinese governments prefers to keep free from foreign investors. Jack Ma circumvented the problem through a special holding in the Cayman Islands and a so-called VIE construction which enables foreign investors to invest in Chinese companies indirectly. That however is an "unacceptable avoidance of the law", Beijing said.

 

Not only China questions Alibaba's "special construction", as shareholders and international regulatory boards have discussed its legality as well. Even Chinese companies have warned about this construction in their own filing and other official documents.

 

Consequence: share drops

The flurry of bad news has made plenty of New York Stock Exchange investors jittery: Alibaba's share dropped to its lowest point since its IPO in September 2014.

 

At that time, Alibaba attracted 25 billion dollars, the largest IPO ever, and seemed to be unstoppable: the share shot up 36 % and quickly reached 120 dollars per share, but this week it dropped down to 81 dollars.

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