According to a SEC filing, Alipay, the payment business of Alibaba Group was restructured so that it is now controlled by a separate company, owned mostly by Alibaba Group Chief Executive Officer Jack Ma. Yahoo said the shift was necessary to expedite getting a license for Alipay.
Last year, Chinese government started to formally regulate its online payment industry. Last December, the Chinese central bank, People’s Bank of China, announced the details for third party payment licences. And following the announcement, the first batches of online payment companies started to apply for the licences. They included Alibaba’s Alipay, Tencent’s Tenpay and government back China Unionpay, etc.
To get a license from the People’s Bank of China to operate its payment business, Alipay was restructured as a Chinese domestic company to speed up the process. And the company is mostly owned by Alibaba Group Chief Executive Officer Jack Ma.
The news cause Yahoo to dropped 7.3% yesterday, as Yahoo owned about 40% of Alibaba Group. The shift of Alipay to Jack Ma’s private company sound like a dilution of value for Yahoo’s investors.
However, many Chinese internet companies are structured as domestic companies to get the necessary licenses. But, their profits are transfered to off-shore vehicles for listing in overseas market. If you look carefully into company structure of Sina, Sohu, etc, you would find there is a local company doing all the work and controlled by its founder or CEO. But its profit is transferred to an offshore vehicle, which is listed in the U.S.
In my view, if Jack Ma’s private company will be transferring all its profit back to Alibaba Group, and therefore to Yahoo, there is nothing for investors to worry about. But, if this is not the case, I think investors should consider firing the management of Yahoo, as they allow a valuable asset to shift out of the company right before their eyes.
And accroding to Shao Yibo, former founder of EachNet(acquired by Ebay for US$ 150 million in 2003 ), such move could
be a compromise among Yahoo, Softbank and Alibaba for getting Alipay a license. All three parts involved would make
further arrangements to make sure no one’s cake gets ravend.
SoftBank, the second biggest stakeholder of Alibaba, said that the three parts are still negotiating.
A Credit Suisse report remarks that, the Alipay restructure is a particular event, which will not reflect badly on Tencent or Tenpay, a Tencent online payment solution similar to Alipay. Credit Suisse believes that it’s the most conservative way to transform Alipay to a completely domestic company.
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