Tencent Tech, 5/12/11
Chinese e-commerce conglomerate Alibaba Group's third-party payment subsidiary, Alipay, sent out an official announcement this morning confirming that that ownership of Alipay was restructured in 2010 so that 100% of its shares are held by Zhejiang Alibaba E-Commerce Co., Ltd., a domestic company majority-owned by Alibaba Group CEO Jack Ma. The move was in accordance with the People's Bank of China's (PBoC) "Administrative Regulations Pertaining to Payment Services Offered by Non-Financial Institutions" issued in 2010, as well as to ensure the security of domestic financial data.
Yahoo revealed in its Q1 2011 fiscal report that the move was taken in order to expedite obtaining an essential regulatory license, as the regulations require Alipay to be a wholly-owned subsidiary of a domestic firm.
The PBoC regulations stipulate that no non-financial institution can provide third-party payment services without regulatory approval. Applicants must have a legally established local company, and meet stringent requirements regarding the nature and size of foreign investment, including approval by China's State Council.
Because Yahoo holds a 40% stake in Alibaba Group, it also holds equivalent stakes in Alibaba subsidiaries Alipay and Taobao. Yahoo has reportedly turned down repeated Alibaba offers to buy back its stake, creating friction between the two companies. Yahoo's stake is also rumored to be the reason why Taobao has yet to list independently.
Alibaba Group's management and its principal shareholders, Yahoo and Softbank Corporation, are engaged in ongoing discussions regarding the terms of the restructuring and the appropriate commercial arrangements related to the online payment business.
Editor's Note: For more information on this topic, please see "China's Central Bank Issues 3rd-Party Payment Regulations," MD 6/21/10 issue.
Keywords: corporate restructuring IPO Jack Ma e-commerce Taobao foreign investment Alipay State Council People's Bank of China third-party payment Yahoo online payment Alibaba Group regulation e-payment