Open sesame may not work this time

Mainland internet giant Alibaba Group, which listed and then privatised its online trading subsidiary Alibaba.com has gained a reputation among some investors - if not an adoring public - for controversial corporate practices.

With the charismatic entrepreneur Jack Ma Yun at the helm, the high-flying group has become a household name in the country, and now operates a number of fast-growing firms and owns significant market shares in almost every sector of the world's largest internet market on the mainland.

They range from the popular consumer-to-consumer site Taobao to the payment system Alipay, a version of PayPal.

However, savvy investors may look at Alibaba's latest capital-raising plans differently after the painful and expensive lessons learned from the listing of Alibaba.com in 2007 and its subsequent privatisation last year.

The fundamentals of the group may be sound, but after that bruising experience, can investors trust the management to deliver a good deal?

Many investors will not be able to forget the events that followed the resignations of Alibaba.com's long-time chief executive David Wei Zhe and chief operating officer Elvis Lee Shi-huei in February 2011.

Their departures came after the company said an internal investigation found that 100 sales officers helped perpetrate a fraud by allowing fake companies on the mainland to register and sell products on the e-commerce site. It also said more than 2,000 of its "gold suppliers" - companies authenticated by Alibaba - had scammed international buyers.

The "gold status" label conferred absolute trustworthiness on the sellers and much of the runaway success of the internet giant was built on addressing the country's huge trust deficit.

The fraud and the resignations of the two senior executives sent shockwaves through the market and triggered a downward spiral in Alibaba.com's share price that created an inexpensive opportunity to buy back shares of the struggling business-to-business e-commerce service provider from minority shareholders. The group offered minority shareholders HK$13.50 per share - unchanged from its 2007 listing price but a lucrative 60 per cent premium over the 60-day average closing price of the stock on the back of slowing growth in revenue.

Taking the internet portal private last year paved the way for a highly anticipated listing by the parent company, which may come as a mega offering on the Hong Kong market later this year.

Many industry analysts argue that Hong Kong is a preferred listing destination because any future disputes between the management and shareholders are unlikely to be pursued as vigorously here as they might be by lawyers in the United States if the company was listed in New York.

Will investors forgive and forget?

Alibaba's track record has proven to be an uneasy one for some investors and although potential bankers for the yet-to-be-confirmed offering have shifted the focus to the group's growth story, today's much tougher market conditions may make it a difficult sell.

ray.utchan@scmp.com