Review & Outlook

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Alibaba’s Public Listing is a Disaster Waiting to Happen

17 September, 2014 by Matthew O'Brien, Ph.D. in Commentary

Suppose I told you that I had a great stock tip: there’s a shell company in the Cayman Islands that owns, through a bunch of subsidiaries, a portion of the portion of the profits of a huge, fast-growing Internet company in a quasi-Fascist country where the rule of law is basically nonexistent.  This Cayman Islands shell company doesn’t have any meaningful control over the Internet company that is the source of its expected profit-stream.  The owners of the Internet company and its various subsidiaries “promise” to give profits to the Cayman Island shell company, but at the same time they state that there’s no guarantee that they “will not breach the existing contractual arrangements.”

Sound enticing?  This is effectively what Alibaba is offering its prospective shareholders as it prepares to list on the New York Stock Exchange — the term “shareholder” should be used lightly, of course, because Alibaba’s shareholders won’t have a share of the company at all.  As Paul Murray of the Financial Times has written, “On any traditional, conservative, common sense measure, Alibaba is unfit to float [on a public stock exchange].”