The biggest winners from Alibaba's IPO

A handful of foreign investors who took a punt on Chinese internet start-ups such as Alibaba are now minting money from the huge success of the country's e-commerce sector.

Who is going to be the biggest winner of Alibaba’s blockbuster IPO in the US? The answer is Masayoshi Son, a Japanese businessman of Korean descent who is the chairman of Softbank, a leading phone company in Japan and the US.

Softbank is the largest investor in Alibaba, with more than 34 per cent of shareholding in the Chinese e-commerce giant. Son is expected to turn his initial investment of US$20 million in 2000 into a financial bonanza of US$58 billion once Alibaba is listed. This is a return on investment that would make even Warren Buffett envious.

Son is guaranteed to have to a seat on the board of Alibaba as long as he holds at least 15 per cent of the company, according to the Chinese company’s filing to the US Securities and Exchange Commission.

This is actually a touch ironic considering the poor state of affairs between the two Asian giants. A Japanese businessman is expected to be the biggest financial winner out of the biggest success story for the Chinese corporate sector.

The runner up to winning the Alibaba lottery is in fact Marissa Mayer and Yahoo. The Sunnydale-based ailing internet giant owns 23 per cent of stake in the Chinese e-commerce giant. Yahoo has to sell 40 per cent of its stake in Alibaba due to an agreement with the sale expected to fetch US$10bn. This is a much-needed cash injection for the company, which is struggling to keep up with its rival Google.

In fact, Yahoo’s share in Alibaba accounts for more than 70 per cent of its market capitalisation. Robert Peck, a tech analyst at SunTrust Robinson Humphrey, argues that Alibaba is the most valuable piece of Yahoo, responsible for more than half the price of the stock, according to Bloomberg.

Jack Ma, the charismatic founder of Alibaba is only going to be a distant third in terms of reaping financial benefits from taking the company he founded in his apartment 15 years ago. But his 8.9 per cent share in the company would still make him the richest man in China.

Softbank and Yahoo are not the only foreigners who are minting money from the extraordinary success of the China’s booming internet and e-commerce sectors. South African firm Naspers is the single largest shareholder in Tencent, the most valuable internet company in Asia that is worth close to 900bn Hong Kong dollars. 

Jacobus Petrus Bekker, CEO of Johannesburg-based Naspers, has turned his initial outlay of US$32m in 2001 into nearly US$39bn within 13 years, more than a thousand times Bekker’s initial investment.    

Australian investors like Telstra and the Bassat brothers of SEEK have also done well out of China's fast-growing internet sector.  For example, Telstra bought into Autohome back in 2008 when Sol Trujillo was still in charge of the telco. Telstra’s initial and subsequent investment of $200m in Autohome, the largest car sales portal in China, turned into a $2.2bn profit after Autohome was floated the New York Stock Exchange late last year (Trujillo's parting gift for Telstra: China, December 13).  

The Bassat brothers are also expected to win a significant windfall from the expected listing of Zhaopin, the second largest job site in China of which they own 79 per cent of the shares.

The bigger story is how foreign investors took a punt on Chinese internet start-ups when they were desperate for capital. And their investments are paying off in leaps and bounds now. For example, when South African Bekkers invested in Tencent in 2001, it was only a small loss-making start-up. 

Foreign venture capital has been instrumental in the development of China’s nascent internet industry. Many former start-ups have emerged to become industry giants that are now able to take on their established Western rivals.

It is perhaps surprising that Beijing has been relatively sanguine about the foreign influence over some of the leading players in the country’s new economy, including listing on the US stock exchange.

It will be interesting to see whether Alibaba will move its listing to Hong Kong one day to offer Beijing better oversight over one of its star players (Alibaba’s long road homeMay 7). 

Follow Peter Cai on Twitter: @peteryuancai



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