Alibaba investors risk being gored in bull run
Source: Ann Crotty
THE lone US senator who was urging the Securities and Exchange Commission to investigate the gaping governance holes in Alibaba must have felt like some stray tourist caught up in the middle of the annual bull run in Pamplona.
On Thursday, Senator Bob Casey looked as though he was about to be charged down by an excited herd of bulls desperate to invest in ... well, that's the thing, it's difficult to know exactly what they're investing in.
Alibaba is described as a Chinese technology company.
It is 15 years old, and in recent years has pumped out good profits from linking buyers with sellers of almost everything.
But that is not what US investors were pouring their money into on Friday, the first day of Alibaba's listing on the New York Stock Exchange.
What US investors are buying into is a Cayman Island shell company that has contractual rights to the profits of Alibaba's China-based profits but no economic interest in them.
The extremely complicated structure created around Alibaba partly reflects controlling shareholder Jack Ma's determination not to dilute his control over management. This is reasonable enough, given his success in building the company from scratch. But, more critically, the structure also reflects the Chinese government's restriction on foreigners investing in sectors, such as technology, which are deemed sensitive. To avoid these restrictions, Chinese companies set up what is called a variable interest equity (VIE) structure. This is what is at the heart of the Alibaba pyramid - as it is at Tencent.
What should be causing some restraint from investors is that the validity of the contracts underpinning these structures is determined entirely by the Chinese courts and government.
Beijing is probably keen to see a "national champion" thrive on the world stage. However, the reality is Alibaba represents a bet not on the company's technological capacity nor on its growth prospects, but on the Chinese government's acceptance of foreign investors.
Sasol
SASOL is such a huge group that the odd billion here or there can often go un-noticed. This may have been why not many people picked up on the extra R3.66-billion that had to be provided for its long-term share incentive scheme.
This took the company's provision for its share incentive scheme to R5.4-billion from R1.7-billion. Management said the increased provision was needed because of the 47% rise in the share price over the previous year. The unexpectedly steep charge did knock reported earnings.
Anglo American
THERE was something rather sad about recent reports from Anglo American chief Mark Cutifani that the group is open to takeover offers. Sad, mainly because, apart from a brief blip in the share price, there was hardly any response. It was all rather ho-hum as though no one could quite recall who Anglo American was and what it did.
For South Africans who still remember the pre-1994 days, when Anglo seemed to have as much control over the SA economy as the Nationalist Party government, the seeming lack of interest ― from potential buyers and the media ― must have come as a bit of a shock.
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