Chinese billionaires Jack Ma and Joe Tsai have pledged parts of their $ 35 billion joint stake in the Alibaba trading group in exchange for significant loans from investment banks, company documents show.
The share commitments, made to banks such as UBS, Credit Suisse, Goldman Sachs and others, were made by offshore companies that control more than half of the shares of the two billionaires in Alibaba, which totaled 5.8 percent in December. In pledging the shares, the banks accept the shares as collateral for the loans but the borrower retains ownership of the shares.
The amounts of most of the pledges of participation have not been disclosed in the documents, but the couple has repeatedly turned to lend against their actions since Alibaba listed them in the United States in 2014, the documents show. from the Financial Times show.
But both Tsai, Alibaba’s two largest individual shareholders, have used the loans to unlock immense personal fortunes linked to the group’s shares.
World banks have extended a wide variety of credit to Ma and Tsai. Tsai’s private Gulfstream 650ER jet is mortgaged to Credit Suisse. The Swiss bank, which brought Alibaba to market, also extended credit during the IPO preparation to an offshore company connected later to Ma’s purchase of a prodigious home in Hong Kong’s Peak district and a again air the same model as Tsai’s.
The scope of the action involves risks and is limited by most American companies. Any forced sale of the promised shares of executives can aggravate the fall in the share price of a company. This can be precipitated by margin calls, when borrowers have to repay loans from brokers or give up stock.
Credit Suisse, Nomura, Morgan Stanley, UBS, Mitsubishi UFJ Financial Group and Mizuho it has lost more than $ 10 billion this year when they were forced to liquidate positions in listed companies in the United States held by the Archegos family office after it failed to respond to margin calls.
Alibaba said Ma “and its affiliates” currently did not have outstanding loans secured by Alibaba shares while Tsai’s share-backed loans were “easily manageable” with “prudent loan-to-value ratios to provide”. [a] a substantial cushion against triggering a call margin ”.
The company said the pledge of shares for the loans was part of the “ordinary financial planning to provide liquidity and diversification without having to sell shares in Alibaba.”
But he resigned as Alibaba’s chief executive in 2019 while Tsai remains executive vice president.
Web of offshore companies
Ma and Tsai’s interests in Alibaba are held primarily through five offshore companies: JC Properties, JSP Investment, Parufam, PMH Holding and APN Ltd.
APN has made the largest single commitment known to Alibaba at 400m shares. But rather than in exchange for a loan, this was part of guarantees made to SoftBank and Yahoo of Japan after Ma sculpted the Alibaba payment unit Alipay – now part of its fintech group Ant Group – from the ecommerce company .
Ma’s wife, Cathy Ying Zhang, who took up Singapore citizenship, was instrumental in their reports. Records show that two offshore holding companies of which Zhang is the sole director, JSP Investment and JC Properties, hold 60% of Alibaba’s stake in the couple.
In all, Zhang’s two holding companies for Alibaba shares have made more than a dozen pledges of assets to investment banks for loans extended to a network of offshore companies.
In addition, Zhang is the sole shareholder of a Hong Kong Ma company used to buy a castle and vineyards in France and has power over the well-endowed Jack Ma philanthropic foundation, company records show. He also signed loan agreements from Goldman Sachs to Enbao Asset Management, Ma’s family office.
In a deal, an investment in a Chinese online real estate platform in 2015 that was orchestrated by Enbao, Ma used two offshore holding companies to contribute $ 20 million. One was BVI-based Rainbow Zone Enterprise, which contributed $ 10 million, while at the same time taking out a loan from Swiss bank UBS that was secured against unspecified securities promised to the bank by JSP. Investment.
One day in 2019, the couple created three shell companies, Miracle Orchid Investment, Rising Orchid Investment and Winning Orchid Investment. Three months later they received loans backed by JSP Investment’s assets.
Records seen by the FT have revealed that Alibaba’s American Depositary Shares have been pledged for loans by Morgan Stanley and Credit Suisse, while Goldman referred to American Depositary Shares, and UBS said “securities” and other assets .
Diamond Key Worldwide, based in BVI, another company that Zhang controls, has received four separate loans from UBS. Last year, the company’s Chinese company bought a Rmb35m plot of land ($ 5.4 million) in Hangzhou, where Alibaba is headquartered, to develop for educational purposes.
Unlock liquidity without alarming markets
Bankers say stock promises are a common method for Chinese executives to raise money without losing control of their companies or sending negative signals to the market by selling their shares.
“It’s a really good deal for banks, it feeds a lot of people,” said a former banker. “These founders are rich in goods but poor in money.”
American executives as Tesla co-founder Elon Musk they also promised shares in their companies for loans. But as an American company, Tesla will disclose promises to shareholders under the rules of the Securities and Exchange Commission.
But under more different U.S. disclosure requirements for “foreign private issuers,” a category that includes almost all Chinese technology groups listed in the U.S. including Alibaba, Ma and Tsai have no obligation to disclose their pledges to participate. .
The documents show many of Tsai’s shares and other pledges of assets, but Ma and his wife Zhang have been in place since January, even as they began selling their Alibaba shares.
But he and his wife have repaid an estimated $ 11.4 billion since Alibaba floated in New York, with the majority sold since 2017. His charitable foundation has sold another $ 4.1 billion. Tsai has sold about $ 5.4 billion.
Alibaba said Ma and Tsai have owned “the company’s shares for 22 years and continue to have significant stakes in Alibaba, which make up most of its wealth.”
A former English teacher, Jack Ma is one of China’s best-known entrepreneurs, co-founding Alibaba with Tsai in 1999 before building a fortune estimated by Bloomberg at $ 49.9 billion.
Credit Suisse, Morgan Stanley, Goldman Sachs and UBS declined to comment.
Additional reports from Joe Leahy in Hong Kong