That might not be the story that Alibaba Group Holding Ltd (NYSE:BABA) will put on the company’s website, but investors of the Chinese e-commerce giant might be telling this tale to their kids or even grand kids. An article on StreetAuthority by David Sterman, revealed such stories being told by Granddads today and they all had China as a common factor among them.
To all the avid Alibaba Group Holding Ltd (NYSE:BABA) fans who just can’t take any criticism of the company, this piece is more about coincidences and risks that Alibaba’s investors are prone to, rather than questions surrounding the company’s valuation and business model. So, it is in your best interest, dear Alibaba enthusiast, to be wary of a situation that could develop in future as it has transpired on more than one occasion in the past, according to Sterman.
Enron did it, and so did the Chinese Minsheng Bank, as they ran away with the shareholder’s money in the name of Variable Interest, or VIE structure. Why can’t Alibaba Group Holding Ltd (NYSE:BABA) then, especially since the company has the same structure in place?
VIE is a way to put the key assets of a company in a separate corporation, in an attempt to go around the Chinese regulations which do not allow foreign stakeholders to own key assets of Chinese companies. Jack Ma, Alibaba Group Holding Ltd (NYSE:BABA)’s CEO might be an great honest man, but if Chinese government hands him a $25 billion cheque, trust me, he will not complain.
Minsheng was owned by Hong Kong billionaire, Nina Wang, at least until the Chinese government tore the VIE structure that was used in gaining the bank’s ownership to tiny bits and pieces invisible to the naked eye. Wang’s investment met the same invisibility fate overnight as it vanished into thin air after the Chinese courts termed VIE as, “concealing illegal intentions with a lawful form,” according to the article.
In light of a similar event, even if Jack Ma was committed to Alibaba Group Holding Ltd (NYSE:BABA)’s shareholders, he would merely be a speck of dust for the Chinese government.
Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. CLICK HERE NOW for all the details.