Alibaba float needs big discount to lure investors

Alibaba Group would have to sell stock at a steep discount to lure investors to buy into a New York listing that investment bankers say founder Jack Ma Yun is weighing in a bid to keep management control of the company and limit the voting rights of shareholders.

The South China Morning Post revealed yesterday that Ma might take the potentially US$15 billion share deal to the United States and issue depositary receipts with limited voting rights to retain control of the company despite his tiny 7.4 per cent stake - a structure Hong Kong listing rules prohibit.

Investors looking at the depositary receipt structure would demand a discount to compensate them for the lack of management control, bankers say, especially when they factor in Ma's controversial 2010 decision to strip Alipay out of the group without informing major shareholders Yahoo and Softbank.

That decision transferred ownership of Alipay - an online payment firm similar to PayPal, and considered by many to be the group's jewel - into a firm controlled by Ma. Alibaba only told Yahoo and Softbank of the move in March 2011, and finalised compensation for the partners in July 2011.

Yahoo and SoftBank at the time owned a combined 76 per cent of Alibaba, and held three of five board seats.

"Alibaba's expropriation of Alipay was regrettable to say the least," said Larry Haverty, an analyst with Gabelli & Co, a US brokerage.

Such was the uproar over Alibaba's action, bankers said, that it effectively shut Chinese issuers' access to the US market for months.