The Maa and Baba of All Bubbles | Value Research The Alibaba IPO is a great example of bubble-dazed investors closing their eyes to huge corporate governance issues

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The Maa and Baba of All Bubbles

The Alibaba IPO is a great example of bubble-dazed investors closing their eyes to huge corporate governance issues

The Chinese ecommerce company Alibaba has just completed a giant IPO of ₹1.35 lakh crore. Let me make that sentence more accurate. Alibaba Group Holdings, the Cayman Island based entity, which under some rather ill-defined Chinese laws may or may not have enforceable contractual rights to the profits of a clutch of China-based businesses, has just had a giant ₹1.35 lakh crore IPO. There, that doesn’t sound so good, does it?

Indian investors have long had experience of all kinds of IPO artists. Some of these artists have never had real businesses while others have flourishing businesses in which the promoters somehow always manage to get the better (much better) of ordinary investors. All these artists must now be getting framed pictures of Jack Maa--and his associates, who may or may not be forty in number--put up in their private shrines to light agarbatties every day. In the above corporate structure, the owners of the underlying Chinese company can basically run away with the company in whole or in parts. The most amazing thing is that the worst example of this in the past was when the same Jack Maa did this very thing to Yahoo in the same company in 2009.

Reading up everything that is available on Alibaba and its IPO, the most striking thing is why so few people in financial and media circles are willing to point out that this supposed emperor of ecommerce is in a state of considerable undress. Consider a simple description of what Alibaba is. It’s a clutch of websites that provide a web-based marketplace for buyers and sellers to get together. It’s also a payment escrow system that allows these people to send and receive payments. It so happens that neither the websites nor the payment system is owned by Alibaba itself. Instead, they are owned by private companies controlled by Maa and his associates! Apparently, it had to be done this way to comply with Chinese laws. Maybe it’s time to start importing some of our laws too from China.

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