Alibaba’s investors in the spotlight

A recent New York Times article has put a spotlight on the Alibaba Group’s political connections. Speculations about the Chinese e-commerce giant’s questionable political ties come shortly before its upcoming IPO, which may be one of the biggest initial public offerings in American history.

In September 2012, Alibaba announced the completion of a US$7.6 billion deal to buy back half of Yahoo’s stake in the company, partly with funds raised by selling shares to investors. China’s sovereign wealth fund, and three major Chinese investment firms were among them. According to an analysis by The New York Times, the three firms – Boyu Capital, Citic Capital Holdings and CDB Capital, the China Development Bank’s private investment arm – all count sons or grandsons of the most powerful members of the ruling Communist Party as senior executives. Alibaba failed to mention these connections.

Documents reviewed by The Times also show that a fourth – previously undisclosed – investor also bought Alibaba shares in September 2012: New Horizon Capital, a private equity firm co-founded by Winston Wen, son of Wen Jiabao, China’s Premier at the time.

The Times’ research on these investors yielded an impressive list of names, all of which are intricately linked to State-level leaders. The article also pointed out that most of the new investors that came on board in 2012, including the sovereign wealth fund Citic Capital and CDB Capital, are state-owned. Alibaba’s relationship with CDB Capital – the China Development Bank’s private investment arm – is even more complex: the bank loaned Alibaba US$1 billion to help it buy back Yahoo’s stake.

In a country of more than 1.3 billion people, the fact that four Chinese companies investing in Alibaba have had executives who are either sons or grandsons of the two dozen men who have since 2002 served on the Politburo Standing Committee, the most elite group of leaders, speaks to how deeply China’s political class has attached itself to the highest echelons of finance. For example, The Times reported in 2012 that Mr. Wen’s relatives, including his son, Winston Wen, who co-founded New Horizon Capital, controlled assets worth at least $2.7 billion.

 

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