According to company documents, Chinese billionaires Jack Ma and Joe Tsai have pledged a portion of their combined $ 35 billion stake in Alibaba’s e-commerce group in exchange for significant loans from investment banks.
Pledges of shares given to banks, including UBS, Credit Suisse, Goldman Sachs and others, were taken by offshore companies that control more than half of the two billionaires’ shares in Alibaba, which stood at 5.8% in December. When shares are pledged, banks accept the shares as collateral for loans, but the borrower retains ownership of the shares.
Most of the pledged shares have not been disclosed in the filings, but the pair have repeatedly resorted to borrowing against their shares since Alibaba registered in the US in 2014, documents seen by the Financial Times show.
Ma and Tsai, two of Alibaba’s largest individual shareholders, used the loans to unlock the huge personal fortunes associated with the group’s shares.
Global banks provided a wide range of loans to Ma and Tsai. Tsai’s private jet Gulfstream 650ER is pledged to Credit Suisse. The Swiss bank that brought Alibaba to market also provided credit in preparation for the IPO of an offshore shell company, later linked to Ma’s purchase of a luxury home in Hong Kong’s upmarket Peak area and a new plane of the same model as Tsai.
Share pledges involve risk and are limited by most US companies. Any forced sale of the pledged shares of executives could exacerbate the fall in the value of the company’s shares. This can be caused by collateral requirements where borrowers have to repay loans from brokers or give up shares.
Credit Suisse, Nomura, Morgan Stanley, UBS, Mitsubishi UFJ Financial Group and Mizuho lost over $ 10 billion this year when they were forced to liquidate positions in US-listed companies owned by the Archegos family office after it failed to meet margin requirements.
Alibaba said that Ma “and his affiliates” currently do not have any outstanding loans secured by Alibaba shares, while Tsai’s share-backed loans were “easily manageable” with a “reasonable loan-to-value ratio.” [a] a significant cushion against triggering the margin call. “
The company said the pledge of shares to obtain loans was part of “normal financial planning to provide liquidity and diversification without the need to sell Alibaba shares.”
Ma stepped down as executive chairman of Alibaba in 2019, while Tsai remains executive vice chairman.
Offshore company network
Ma and Tsai’s shares in Alibaba are mainly held by five offshore companies: JC Properties, JSP Investment, Parufam, PMH Holding and APN Ltd.
APN has completed the largest known lump-sum pledge of 400 million shares in Alibaba. But this was not in exchange for a loan, but part of the guarantees provided by Japanese SoftBank and Yahoo after Ma split Alibaba’s payments arm Alipay – now part of his Fintech Ant Group – from the e-commerce company.
Ma’s wife Katie Ying Zhang, who adopted Singapore citizenship, played an important role in his affairs. The records show that two offshore holding companies, of which Zhang is the sole director, JSP Investment and JC Properties, own 60% of the pair’s stake in Alibaba.
In total, Zhang’s two holding companies that own shares in Alibaba have pledged more than a dozen assets to investment banks through loans to a network of offshore companies.
In addition, Zhang is the sole shareholder of the Hong Kong company that Ma used to buy a castle and vineyards in France, and has authority over Jack Ma’s well-endowed charitable foundation, business records show. She also signed a cheap loan from Goldman Sachs for Enbao Asset Management, Ma’s family office.
In one deal, an investment in a Chinese online real estate platform in 2015 hosted by Enbao, Ma used two offshore holding companies to deposit $ 20 million. One was Rainbow Zone Enterprise, based in the British Virgin Islands, which contributed $ 10 million and at the same time took out a loan from the Swiss bank UBS, which was secured against unspecified securities pledged to JSP Investment.
One day in 2019, the couple founded three shell companies: Miracle Orchid Investment, Rising Orchid Investment and Winning Orchid Investment. Three months later, they received loans secured by the assets of JSP Investment.
The footage the FT saw clearly showed that Alibaba’s American depository shares were pledged against loans from Morgan Stanley and Credit Suisse, while Goldman referred to pledged US depository shares, and UBS reported pledged “securities” and other assets.
Another Zhang-controlled company, Diamond Key Worldwide, based in the British Virgin Islands, received four separate loans from UBS. Last year, the company’s Chinese subsidiary bought a plot of land in Hangzhou, where Alibaba is based, for 35 million yuan ($ 5.4 million) for educational development.
Unlocking liquidity without worrying markets
Bankers say pledging shares is a common method for Chinese executives to get cash without losing control of their companies or sending negative signals to the market by selling their shares.
“This is a really good business for banks, it feeds a lot of people,” said one former banker. “These founders are wealthy in assets but poor in money.”
American CEOs like Tesla co-founder Elon Musk also pledged shares of their companies as loans. But how is the American company Tesla supposed to disclose its obligations to shareholders in accordance with the rules of the Securities and Exchange Commission.
But due to looser US disclosure requirements for “foreign private issuers,” a category that includes nearly all Chinese tech groups listed in the US, including Alibaba, Ma and Tsai are not required to disclose their share promises.
The documents show that many of the shares and other pledged assets of Tsai, Ma and his wife Zhang remained in place as of January, even as they began selling their shares in Alibaba.
Ma and his wife have cashed in about $ 11.4 billion in shares since Alibaba’s New York listing, most of which were sold in 2017. His charitable foundation sold an additional $ 4.1 billion. Tsai sold approximately $ 5.4 billion.
Alibaba said Ma and Tsai have owned “shares in the company for 22 years and continue to have significant stakes in Alibaba, which make up most of their fortune.”
Former English teacher Jack Ma is one of China’s most famous entrepreneurs, and he co-founded Alibaba with Tsai in 1999, before making a fortune estimated by Bloomberg at $ 49.9 billion.
Credit Suisse, Morgan Stanley, Goldman Sachs and UBS declined to comment.
Additional reporting by Joe Leahy in Hong Kong