Alibaba’s (NYSE: BABA) recent run in with Taiwanese law and its payment arm reportedly looking for Chinese government-backed finance is making market analysts look around for more comprehensive answers. Let's try to catch up with the entire story.
A tussle is on in Taiwan
It all began in September last year, when Taiwanese officials from the Investment Commission began investigating Alibaba Group Holding Ltd. for violating investment rules meant for Chinese companies. In 2008, Alibaba entered the Japanese market through its Singapore-based unit Alibaba.com, which focuses on international wholesaler deals. At the time, the island of Taiwan restricted the entry of Chinese companies into the country’s investment portfolio, as China was viewed as a political rival. It is only after 2009 that Taiwan eased the rules and opened up its markets to Chinese investments and subsidiaries. The commission, which comes under the Ministry of Economic Affairs, scrutinized Alibaba’s IPO information file to find that Alibaba.com was directly related to the Chinese parent company. Recently, investment regulators have slapped a modest $3,800 fine on Alibaba and ordered it to withdraw all holdings from the Taiwanese market within the next six months.
Alibaba, on the other hand, claims to have done everything by the book. It claims that, since the parent company, Alibaba Group, went public in the United States, the commission has reviewed the holding history of Alibaba and deemed it to be a Chinese company. Presently, the Chinese firm is reportedly working with Taiwanese officials to resolve all ownership issues according to the law of the land. You can easily find a large array of products from Taiwanese merchants that are doing well on Alibaba’s Taiwanese e-commerce portal Taobao. Thus, pulling out from the market would not be a clean break for either the local merchants or for the Chinese e-commerce giant.
Additionally, the embattled ecommerce company announced the launch of a $316 million investment fund through nonprofit models aimed at Taiwanese startups. The fund plays into Alibaba’s business model which in turn is run by entrepreneurs who use Alibaba’s shopping sites to sell their products. According to a statement from the company’s management, the fund is intended to help "start and grow businesses on marketplaces and platforms in the Alibaba ecosystem, enabling them to offer products and services in the Greater China region." The fund is expected to materialize by the latter half of 2015, if ultimately approved. In fact, it would be fair to wonder if the announcement has anything to do with the ongoing soup Alibaba has been in with the Taiwanese investment officials.
Seeking clarity
On a whole other tangent, media reports are speaking about Alibaba’s financial dealings’ wing, Zhejiang Ant Small & Micro Financial Services, or Ant Financial in short, looking forward to placing its initial public offering in early 2016 or 2017. Art Financial owns and operates Alipay, which is the payment gateway for Alibaba’s e-commerce transactions. Potential investors could include state-owned Postal Savings Bank of China and policy major China Development Bank, while Chinese investment biggie China International Capital Corp. might be handling the IPO. Last month, Chinese media reported that Ant is looking to sell 11% stake, reportedly valued at $30 billion, to government-backed investors.
Capital backing from Beijing is a powerful positive signal for the company because in China the financial markets seldom function outside the ambit of state guarantee. Clearly, Ant Finance is working within the designated limits and as a positive ally of the government.
Last word
Alibaba is trying to sort out its differences with the Taiwanese government and with its financial arm also planning its IPO somewhere next year or beyond, things seem to be working well for the Chinese ecommerce player. Let’s keep an eye on the upcoming moves of Alibaba that will give further clarity on its upcoming future.
