Money Matters

Credibility down, valuation up: football club Evergrande Taobao points the way in China’s business jungle

Jack Ma’s Alibaba and developer Evergrande are poised to show their Midas touch if efforts to sell a 15 per cent stake in Evergrande Taobao are successful

PUBLISHED : Friday, 27 November, 2015, 7:29pm
UPDATED : Tuesday, 08 December, 2015, 4:52pm

Credibility is not a necessity in making a good and legal fortune in China. Evergrande Taobao, the country’s best known soccer team, showed the world.

The team, which is jointly owned and managed by Evergrande Group and Alibaba Group, made national headlines on Sunday not with its triumph in the AFC Champion League, but the jersey worn for the match.

The red shirt is supposed to carry the logo of Dongfeng Nissan Passenger Vehicle which paid more than 100 million yuan for the exclusivity during this season.

Instead, on the chest are the four characters of Evergrande Insurance, a loss-making 53rd ranked insurer acquired by the developer a day before the match.

The car company was furious and threatened to sue. Evergrande Taoboa’s reply was classic.

The team said it has informed Dongfeng of the change and offered to compensate more than a week before the match. It blamed the latter for refusing to come to the table.

Not many can swallow this logic. The football club was widely criticised for its “absence of contract spirit.”One netizen questioned “who would buy policies from an insurer that has no credibility at all?”

These are all righteous comments. Yet, credibility has never been a tool of survival in China’s business jungle. Hui Ka-yan and Jack Ma know it well.

Sticking to a contract will perhaps bring the club more multi-million yuan sponsorships. That may be meaningful in cutting the team’s significant loss. Yet, in the game of money, it is meaningless.

The reality is Evergrande Taobao has been listed on China’s over the counter market early this month. A day after the championship, Evergrande Taobao launched a sale of a 15 per cent stake for a maximum of 2.6 billion yuan.

That brings its valuation to 17 billion yuan which is only 15% below that of the profit-making Manchester United Football Club.

Nevertheless, one mainland-listed company has announced a 150 million yuan investment for a 0.99 per cent stake in order to “strengthen (its) decoration business with Evergrande” and “pave way for (its) development on online renovation business” with Alibaba.

This is regardless of the team’s headline-making contract breach, not to mention a 1.8 billion yuan accumulative loss over the past five years, and a 500 million yuan estimated loss this year.

Neither does it seems to matter that the mainland OTC market has a meagre turnover of only 1 billion yuan a day.

To the majority, what they know is four facts: President Xi Jinping is a soccer fan; Evergrande Taobao is the country’s only winning team; Evergrande and Alibaba are big; and the soccer team is their only asset listed in the mainland stock market.

By the way, the club has skilfully fanned up interest by limiting the number of its share subscribers to only 35.

It’s not just mainland investors that get ahead of themselves. Hong Kong-listed Ali Pictures and Ali Health have witnessed a 550 and 860 per cent increase ever since Jack Ma took control despite the absence of a meaningful business.

The football club’s share sale, if successful, will get the ball rolling.

The four-time jump in valuation will translate into a 10.9 billion yuan equity hike and some profit gain for Evergrande and Alibaba Group. A boost most welcome by the highly-geared developer.

More importantly, it confirms the Midas touch of the pair.

The same magic dust will be sprinkled on their other loss-making businesses. In fact, Evergrande’s mineral water and culture business have already applied for listing on the OTC market.

It is not hard to imagine a listing of Evergrande Insurance in a year or two. Who cares if the jersey saga has ruined its credibility and if its business can be turned around?

In that sense, making the insurer a household name overnight is much more important than credibility.

In the jungle, people worship not the norm- abiding one, but those who have the guts and brains to play against rules to bring home the kill. Ma and Hui are to prove themselves once again.