Jack Ma has quietly relinquished his ownership of the legal entities at the heart of Alibaba, symbolically handing back the keys to the Chinese technology giant he founded 19 years go.
Mr Ma, 54, has already announced he will retire as Alibaba’s chairman next year. It has now emerged that he has also removed himself as one of the owners of its main “variable interest entities”, the vehicles that hold the company’s operating licences and certain assets on the Chinese mainland.
Alibaba confirmed the move, which has not so far been announced in its regulatory filings, and said it wanted to reduce the administrative burden on Mr Ma.
Mr Ma remains as a shareholder and a permanent member of Alibaba’s 36-strong partnership, which has the right to nominate a majority of the board. But his exit from the VIEs means he will not have one historically important lever of control.
VIEs have allowed Chinese technology companies, whose sensitive internet assets such as licences cannot be legally owned by foreigners, to tap overseas markets for capital.
Shareholders in New York-listed Alibaba have contracts with Alibaba’s VIEs stipulating that profits are transferred across. But the contracts do not always guarantee the interests of foreign shareholders, who do not have direct access to the assets of VIEs.
Ownership of structures like VIEs can enable asset swaps that are detrimental to other shareholders. In 2011 Mr Ma transferred ownership of Alipay, the payments arm that has since been renamed Ant Financial, out of Alibaba and into a company that he controlled personally, despite protests from shareholders including Yahoo, which said it had not been informed.
Mr Ma still controls a majority of Ant Financial’s voting interests.
For Alibaba’s investors, there is now an asymmetric alignment of interests, given the VIEs are no longer in the hands of a major shareholder.
“Jack is the only executive of substance with some skin in the game and is aligned economically with shareholders,” said Delian Entchev, an investment analyst at the Australian fund manager Hayberry. “If he has stepped back [from the VIE] that’s not particularly positive.”
Fredrik Oqvist, founder of the financial services start-up blueflag.io, who has made an extensive study of Chinese VIEs, said the move would also raise questions about Alipay.
“If you are Alibaba and say, ‘we are going to restructure our VIEs’, my first thought would be to go to Alipay and ask questions. Because there is some form at the company for strange things to happen at VIEs,” he said. He added that Alibaba’s VIEs had been “among the best managed”.
Alibaba’s 20-F filing with the Securities and Exchange Commission this month detailed a restructuring of the company’s VIEs, of which there are around 10-20.
The filing detailed a switch in ultimate control from two men, Mr Ma and co-founder Simon Xie, to a group of five. It did not disclose names of the new owners, leaving investors to assume Mr Ma’s ownership was simply being diluted and spread among a wider group of executives.
Alibaba attributed that change to reducing the “key man risk” associated with putting key assets in the hands of a couple of people. The VIEs’ five new controlling shareholders are drawn from the ranks of the partnership.
More than 100 US and Hong Kong listed companies use VIEs. But the structure continues to operate in a legal limbo as Beijing has never confirmed their validity. That has created a faultline at the heart of the $1tn-plus world of overseas-listed China tech and market newcomers duly detail the risk in their listing prospectuses.
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