Alibaba counsels employees on how to spend IPO windfall

As Alibaba prepares for what could be the biggest initial public offering by a tech firm to date, the Chinese e-commerce giant has been counselling employees on how to deal with the roughly US$41 billion they could unlock through a New York listing.

While some staffers have enquired if BMW sells its luxury cars in Alibaba’s corporate orange, others may invest their stock gains in property in North America or channel funds back into start-up ventures in China, hoping to build future Alibabas, bankers and financial planners say.

The company, though, has been preparing employees for years on how to manage the avalanche of cash, warning them not to be carried away and splurge on material goods.

While Alibaba co-founders Jack Ma Yun and Joseph Tsai are already billionaires, many more paper millionaires could be minted once employees are free to sell shares after the IPO.

Current and former Alibaba employees hold 26.7 per cent of the company, having built up their holdings through stock options and other incentives awarded since 1999, according to securities filings, though these didn’t detail the number of employee shareholders.

The IPO windfall – Alibaba could be worth US$152 billion, according to the average from a Reuters survey of 25 analysts – will be larger than anything China has seen, because of the depth of the group’s employee ownership and the firm’s size.

Some of the 20,000 employees have already had the opportunity to sell part of their stakes during previous Alibaba structured share sales through so called liquidity programmes.

“The thinking was that if sudden wealth is like venom, giving small doses every now and then was a bit like anti-venom, because your company isn’t thrown into chaos,” said a person familiar with Alibaba’s incentive plans who was not authorised to speak publicly on the matter.

In its IPO prospectus, Alibaba acknowledged its concerns about employee shareholders coming into new-found wealth and maybe wanting to move on.

“It may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they remain with us,” it said.

Over recent years, Alibaba executives have discussed with employees how the windfall gains could change their lives, warning them not to splash it all on “glitzy things”, said people familiar with those discussions.

As happened after Facebook IPO in 2012, the new Alibaba millionaires are seen driving up demand for luxury cars and apartments, giving a boost to the economy of Hangzhou, Zhejiang province, where the firm is based.

But the Chinese government’s austerity campaign is likely to keep a lid on too much ostentatious spending, and because the stock listing will be in the United States, most of the money employees receive from eventual stake sales would likely be kept offshore rather than flow back to Alibaba’s Chinese base.

“Check real estate in Vancouver, not so much Ferraris and real estate in China,” said a person closely involved with the IPO who was not authorised to speak publicly on the issue.