Alibaba Open to Stake Sale to Sovereign Wealth Funds, Ma Says

Alibaba Group Holding Ltd. founder Jack Ma said China’s biggest e-commerce provider is prepared to sell a stake to sovereign wealth firms to fund its buyback of shares from Yahoo! Inc. (YHOO)

Alibaba is open to investments from firms such as China Investment Corp. and Temasek Holdings Pte as long as the ownership structure isn’t dominated by one or two large shareholders, Ma, 47, said in an interview in Beijing today. Temasek is already an investor in Alibaba, which last month agreed to buy a 20 percent stake in itself from Yahoo for $7.1 billion ahead of an initial public offering.

“You need to have some guy with deep pockets,” Ma said. “I want to make sure it has healthy corporate governance. I don’t want another big guy coming here. Five years later, 10 years later, the next generation of leadership cannot stand the pressure from shareholders.”

Alibaba, which is also taking a Hong Kong-listed unit private, may sell shares in an IPO within five years, Ma said, adding the company hasn’t decided where to offer it. Alibaba is restructuring as competition increases in China’s e-commerce market with Tencent Holdings Ltd. (700), China’s biggest Internet company, planning to invest $1 billion on its Web-trading unit.

Ma said he wants to ensure a “healthy shareholder structure” that will allow the management sufficient freedom to run the company.

Yahoo, Softbank

Under the Yahoo buyback deal, Yahoo and Softbank Inc. agreed to reduce their voting rights to 49.9 percent while their combined ownership still exceeded half the company.

Alibaba had been trying to buy back the stake from Yahoo for more than a year and stepped up efforts in September because of improving prospects for growth and expansion beyond China. Yahoo acquired about 40 percent of Hangzhou, China-based Alibaba in 2005 in exchange for $1 billion and ownership of Yahoo’s Chinese operations.

In September, DST Global and Temasek were among investors that agreed to buy shares of Alibaba in a transaction valuing the Chinese company at $32 billion, people familiar with the deal said at the time. Silver Lake (SLR) and Ma’s Yunfeng Capital were also part of the group that bought as much as $1.6 billion in stock from Alibaba employees, said the people.

Tokyo-based Softbank owned about 30 percent of Alibaba Group, operator of the Taobao online marketplace for consumers, and the Tmall Internet shopping site.

English Teacher

A phone call to CIC’s Beijing-based press office after normal working hours yesterday went unanswered. Temasek declined to comment on hypothetical situations, said Stephen Forshaw, a spokesman for the company.

A former English teacher, Ma owns about 7.4 percent of Alibaba Group, according to a Hong Kong stock exchange filing in April, putting the value of his stake at $2.6 billion. The company is taking Alibaba.com Ltd. (1688) private after winning approval from the Hong Kong-listed unit’s shareholders for a $2.5 billion buyout.

Alibaba hasn’t decided on a location for the IPO, said Ma.

“Today it’s too early to discuss,” he said. “In China our size now might be too big. I don’t know if the USA will welcome us. It depends on what happens five years later. It’s not like we need to raise money, because this company is very profitable.”

Before Deadline

Dundas Deng, a Shenzhen-based analyst with Guotai Junan International Ltd. (1788), said Alibaba has an incentive to list sooner to take advantage of a provision that requires Yahoo to sell an additional 10 percent stake in the company if an IPO occurs before December 2015.

“I think they will definitely try to do it before that deadline,” said Deng. “If that deadline passes it would be very hard for them to negotiate with Yahoo for the rest of the shares.”

Revenue rose to $2.3 billion in the year ended Sept. 30 from $1.3 billion a year earlier, according to Yahoo’s annual report in February. The Chinese company posted a profit of $268 million, compared with a loss of $10.7 million a year earlier, according to the document.

Ma said he is “pretty confident” Alibaba can withstand new challenges. Most Chinese e-competitors “are copycats of the U.S.,” he said. “Copycats never survive,” he said.

Ali-loans

Alibaba wants to differentiate itself from competition and as part of its diversification strategy, it’s partnering with China’s Haier Group (1169) to offer a new smartphone using an operating system developed by Alibaba, the company said in an e-mailed statement on June 6. The phone will have a selling price of 999 yuan ($157) and go on sale in mid-June, Alibaba said.

Ma said Alibaba is also trying to help small Chinese businesses that have difficulty getting loans from China’s banks, which focus mostly on large, state-owned enterprises.

Over the past two years, the group’s Ali-loan company has made credit of 500,000 yuan or less available to 12,000 small and midsized businesses, he said. The target is to help 1 million companies in three years, Ma said.

“Today people think of Alibaba as an e-commerce company, an Internet empire. We want to build up a company in Chinese history nobody has seen before,” said Ma. “It’s not an empire, it’s an ecosystem.”

While Ma has no plan to step down from Alibaba, he said he is already looking ahead.

“Someday Jack Ma is going to retire,” he said. “I don’t want to be 80 years old and still running this company. When you are over 50 or 60, you are too old for an Internet company.”

By Frederik Balfour and Bruce Einhorn

Courtesy of Bloomberg News

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