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Jack Ma Eyes Alibaba Stake Draw-Down - Sort Of

Bottom line: A plan by Alibaba's chairman and vice chairman to borrow $2 billion using their company stock as collateral is a simple diversification move, and doesn't represent any change in the company's fundamentals or outlook.

Shares of e-commerce leader Alibaba (NYSE:BABA) have been buzzing these last few days since media reported that Chairman Jack Ma and one of the company's other co-founders are preparing to diversify their company holdings that are worth billions of dollars. Neither Ma nor Vice Chairman Joe Tsai are planning an actual share sale, which would almost certainly undermine the company's shaky stock. Instead, the pair are in talks to take out a $2 billion loan using their huge stash of Alibaba shares as collateral.

Alibaba's shareholders didn't seem to like the plan too much, and made their voices heard by trimming nearly 4 percent from the company's share price after reports of the move surfaced late last week. The latest close means Alibaba stock now trades at a record low of $63.91, or about 6 percent below the $68 price for its record-breaking $25 billion IPO that will celebrate its one-year anniversary later this month.

The company's publicity machine was quick to try to downplay the news, forwarding an analyst report saying the stock was significantly undervalued, with plenty of potential upside. As an independent company watcher, I do tend to agree with that view and expect that investors are getting just a bit too antsy and looking for any reason they can find to sell the stock right now.

We'll return to the valuation question later, but first let's review the latest headlines that cite unnamed bankers saying Ma and Tsai are in talks for a $2 billion margin loan that would be made using their stock as collateral (English article; Chinese article). The pair may use the money to fund Blue Pool Capital, which is described as a hedge fund manager set up by Tsai a decade ago.

Credit Suisse, Goldman Sachs and Morgan Stanley are all working on the deal, which could be announced later this month after a lock-up period for Ma and Tsai ends on September 21 - the one-year anniversary of Alibaba's IPO. Both Ma and Tsai are billionaires with fortunes worth $29.4 billion and $4.3 billion, respectively. If much of their combined $33.7 billion fortunes are in Alibaba stock, the pledging of shares for this $2 billion loan would amount to a sizable, but still relatively modest, 6 percent of their holdings.


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