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2/8/2016

Alibaba'sI.P.O.CouldBeaBonanzafortheScionsofChineseLeadersTheNewYorkTimes

AlibabasI.P.O.CouldBeaBonanzafor
theScionsofChineseLeaders
ByMichaelForsythe

July20,20148:16pm

ItwasbilledasthebiggestprivatefinancingdealinthehistoryofChina.
InSeptember2012,theAlibabaGroupannouncedthatithadcompleteda
$7.6billiondealtobuybackhalfofYahoosstakeinit.Thegiantecommerce
companyraisedpartofthemoneybysellingsharestoselectinvestors,notably
ChinassovereignwealthfundandthreeprominentChineseinvestmentfirms.
WhatAlibabadidnotdetailwasthedeeppoliticalconnectionsofthe
investmentfirms,BoyuCapital,CiticCapitalHoldingsandCDBCapital,the
ChinaDevelopmentBanksprivateinvestmentarm.
Theirseniorexecutiveranksincludedsonsorgrandsonsofthemost
powerfulmembersoftherulingCommunistParty,accordingtoananalysisby
TheNewYorkTimes.DocumentsreviewedbyTheTimesalsoshowthata
fourthinvestorboughtAlibabasharesthatmonth:NewHorizonCapital,a
privateequityfirmcofoundedbythesonofChinasprimeministeratthe
time,WenJiabao.Thenewrevelationsonlydemonstratethepaucityof
informationaboutexistingshareholdersinwhatispoisedtobethebiggest
initialpublicofferingofthisyear.

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2/8/2016

Alibaba'sI.P.O.CouldBeaBonanzafortheScionsofChineseLeadersTheNewYorkTimes

Aspartofitsregularfilingsfortheoffering,Alibabadisclosedtheowners
ofabout70percentofitsshares.Thegroupincludesbigforeigninvestorslike
YahooandtheJapanesecommunicationscompanySoftBank,aswellastop
executivessuchasAlibabaschairman,JackMa,anditsvicechairman,Joe
Tsai.
Butlessisknownaboutothershareholders,whoseswaymaybe
significanteveniftheirstakesarenot.Thesituationraisesquestionsaboutthe
transparencyandoperationsofAlibaba,whichissettogopublicintheUnited
Statesinthecomingmonths.
Itwouldtake,atthispoint,aseismicefforttotoppleanAlibaba,said
AnneStevensonYang,acofounderoftheBeijingfirmJCapitalResearch,
whichspecializesindetailedanalysesofChinesecompanies.Theyvegotso
manydifferentalliesacrosssomanydifferentministries.
Suchpoliticallyconnectedinvestorswillmostlikelyreapabonanzawhen
Alibabagoespublic,anofferingthatanalystsestimatecouldvaluethe
companyatmorethan$200billion.Atthatlevel,evena1percentstakewould
beworth$2billion.
Already,theirinvestmentshaveperformedspectacularlywell.
NewHorizonCapitalreportedthatattheendof2013thevalueofits
Alibabastakestoodat3.73timesthecostofitsinitialinvestment,accordingto
thedocumentsfinancialstatementsfromoneofNewHorizonsinvestors,
theCaymanIslandsregisteredpartnershipLegacyCapital.
Bythatmeasure,the$400millioninvestmentinAlibabamadebya
subsidiaryofBoyuCapitalgainedmorethan$1billioninthesametime
period.BoyucountsformerPresidentJiangZeminsHarvardeducated
grandsonAlvinJiangasapartner.
Inacountryofmorethan1.3billionpeople,thefactthatfourChinese

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2/8/2016

Alibaba'sI.P.O.CouldBeaBonanzafortheScionsofChineseLeadersTheNewYorkTimes

companiesinvestinginAlibabahavehadexecutiveswhoareeithersonsor
grandsonsofthetwodozenmenwhohavesince2002servedonthePolitburo
StandingCommittee,themostelitegroupofleaders,speakstohowdeeply
Chinaspoliticalclasshasattacheditselftothehighestechelonsoffinance.For
example,TheTimesreportedin2012thatMr.Wensrelatives,includinghis
son,WinstonWen,whocofoundedNewHorizonCapital,controlledassets
worthatleast$2.7billion.
Suchconnectionsmatter.Theyhelpsecuredeals,potentiallygiving
companiesanadvantageinahighlycompetitivebusinessenvironment.
Corporatetiestothesesocalledprincelingshavealsoattractedthe
attentionoflawenforcementauthoritiesintheUnitedStates.Investigatorsat
theSecuritiesandExchangeCommissionandfederalprosecutorsinBrooklyn
arelookingatwhetheraJPMorganChaseprogramcalledSonsandDaughters,
underwhichithiredrelativesofseniorChineseofficialsandtopcompany
officials,violatedtheForeignCorruptPracticesAct.Otherbanksareunder
investigationforsimilarprograms.
JPMorganandtheotherbankshavenotbeenaccusedofanywrongdoing.
TorunafouloftheAmericanlaw,acompanymustactwithcorruptintentor
withtheexpectationofofferingajobinexchangeforgovernmentbusiness.
InAlibabascase,theownershipstakesaretangledinlayersofshell
companiesthatshiftfromoneCaribbeantaxhaventoanother.
SomeofBoyussharesareheldthroughoneofitssubsidiaries,Athena
ChinaLimited,whichissetupintheBritishVirginIslands.Athenais
controlledbyanotheroffshoreentity,ProsperousWintersweetBVI,whichin
turnisownedbytheCaymanIslandsregisteredBoyuCapitalFundI,Alibaba
reportedtotheSecuritiesandExchangeCommission.
LegacyCapitalwassetupin2011.Asoftheendoflastyear,itsmain
assetsincludedholdingsinBoyuCapitalFundI,NewHorizonCapitalIVand

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2/8/2016

Alibaba'sI.P.O.CouldBeaBonanzafortheScionsofChineseLeadersTheNewYorkTimes

AthenaChina,allofwhichheldAlibabashares.
Withsuchanintricateweb,itishardtogetacompletepictureofAlibabas
ownershipstructure.
Forexample,theLegacyCapitaldocumentsdisclosedAthenaChinas
$400millioninvestmentinAlibabashares.Buttheydidnotdetailthe
additionalAlibabastakesheldbyBoyuandNewHorizon.
NewHorizonwasnotpartoftheSeptember2012Alibabafinancing
arrangementandmostlikelyacquireditsholdingfromexistingshareholders,
accordingtoapersonwithknowledgeofthetransaction,whodeclinedtobe
identifiedbecauseofthesensitivityoftheissue.
RobertChoi,adirectorofLegacyCapitalinLosAngeles,didnotrespond
toarequestforcomment.AnAlibabaspokeswomaninHongKongsaidthe
companywasinitssocalledquietperiodbeforethepublicofferingandwas
notabletocomment.
Addingtothecomplexityofthestructure,mostofAlibabasnewinvestors
in2012,includingthesovereignwealthfundCiticCapitalandCDBCapital,
werealsostateowned.InthecaseofthegovernmentownedChina
DevelopmentBank,therelationshipgoesevendeeper.ThebanklentAlibaba
$1billiontohelpitbuyYahoosstake.
ForAlibaba,theconnectionsgotothehighestlevelsofgovernment.
InSeptember2012,HeJinleiwhosefather,HeGuoqiang,wasthenthe
CommunistPartystopanticorruptionofficialwasavicepresidentatCDB
Capital,saidtwopeoplefamiliarwiththecompanywhospokeonthecondition
ofanonymitybecauseofthesensitivityoftheissue.Atthetime,theChina
DevelopmentBankwasheadedbyChenYuan,thesonofChinasformertop
economicplanningofficial,ChenYun,whowasamemberofthePolitburo
StandingCommitteefromthe1930sintothe1980s.

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Alibaba'sI.P.O.CouldBeaBonanzafortheScionsofChineseLeadersTheNewYorkTimes

TheyoungerMr.Chensteppeddownin2013aschairmanofthebank.
TheyoungerMr.Hewasstillatthefirmasofthisyear,accordingtoaccounts
ofhisactivitiesoncompanywebsites.
CiticCapitalisoneoftheinvestmentarmsofthestateowned
conglomerateCitic,whichownsstockbrokerages,banks,mines,steelmills
andoilfields.Anotherunitofthecompany,CiticPrivateEquityFunds
Management,wasleduntilmid2012byLiuLefei,whosefather,LiuYunshan,
Chinastoppropagandaofficial,ascendedtothePolitburoStanding
CommitteethatNovember.TheyoungerMr.Liuwasnamedvicechairmanof
CiticSecuritiesthisMarch.JeffreyZeng,aseniormanagingdirectoratCitic
Capital,isthesonofthecountrysformertopplanningofficial,ZengPeiyan,
whowasamemberofthePolitburothegroup,normallywithabout25
people,fromwhoserankstheeliteStandingCommitteeisdrawn.
WangJun,73,thesonofWangZhen,aformervicepresident,wasa
longtimechairmanofCitic.Hisfatherwas,alongwiththeelderMr.Chen,one
oftheeightimmortals,thegroupofCommunistPartyelderswhoguidedthe
nationinthe1980s.TheyoungerMr.Wangwas,untilthisyear,chairmanof
anothercompanythatCitichadinvestedin,thepharmaceuticaldatafirmCitic
21CN.InJanuary,AlibabaandaninvestmentfundfoundedbyMr.Ma,
Alibabaschairman,acquiredamajoritystakeinCitic21CN.
ArepresentativeofCiticCapitalsaidthecompanydidnotcommentonits
investmentsandthatMr.Liuheadedanotherdivisionofthecompany.
RepresentativesofCDBCapitalandBoyuCapitaldidnotcomment.
KikiZhaocontributedresearchfromBeijing.
Aversionofthisarticleappearsinprinton07/21/2014,onpageB1ofthe
NewYorkeditionwiththeheadline:InAlibaba,aBonanzaforChinasTopScions.

2016TheNewYorkTimesCompany

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