High on caffeine on a trip to Geneva my initial reaction to the Alibaba IPO was euphoria
Sometimes you have to rethink things as new facts emerge. When the Alibaba IPO was announced (I'm a big fan of Jack Ma!) it seemed like a slam duck investment opportunity that should feature in any portfolio. But since Alibaba's IPO document is likely to reveal a structure closely akin to that of Chinese micro-blogging, Twitter-like, giant Weibo (Alibaba owns 18 percent of Weibo), I am now more wary. Quite openly Weibo’s IPO filing shows that investors will not be able to appoint directors to key operating companies in the ownership chain and the regulations governing the money making ends of the company will naturally be set by the Chinese government. This Bloomberg graphic shows the complex layers between IPO investors and the cash generating entities.
This screen grab from Bloomberg TV shows Weibo's convoluted structure at IPO
Since this is where these companies make their money I missed this obvious point, hence the rethink. It makes Weibo shares riskier and, although Alibaba is a quantatively different operation, it will still have a convoluted structure out of necessity no doubt (like any national government the Chinese clearly have the right to lay down regulations in their own jurisdiction).
The bottom line is, if you invest in either of these two IPOs, you are taking a punt on 'trusting the numbers and the managers to do the right thing'. There is little by way of comprehensive regulatory oversight. In short it's more about TRUST than VERIFY!
The bottom line is, if you invest in either of these two IPOs, you are taking a punt on 'trusting the numbers and the managers to do the right thing'. There is little by way of comprehensive regulatory oversight. In short it's more about TRUST than VERIFY!
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