Alibaba Founders Pledge Company Stock For Pledged Share Loan

Chinese tycoons Jack Ma and Joe Tsai have pledged part of their combined $35bn (£25bn) stake in Alibaba in exchange for large pledged share loans from investment banks.

The share pledges, which were made to lenders including UBS, Credit Suisse and Goldman Sachs, were made by offshore companies that control half of the two billionaire’s stake in the eCommerce giant, which totaled 5.8 per cent in December.

The amounts of the share pledges were not disclosed but the pair have repeatedly borrowed against their stock since Alibaba’s US listing in 2014, according to documents seen by the Financial Times.

Ma and Tsai, who are Alibaba’s two largest shareholders, have used the loans to access vast fortunes tied up in shares.

According to the report, Tsai’s Gulfstream 650ER private jet is mortgaged to Credit Suisse.

The Swiss bank, which oversaw the company’s IPO, also lent to a shell company linked to Ma’s purchase of a mansion in Hong Kong and a new plane the same model as Tsai’s.

Alibaba said Ma did not have any outstanding loans borrowed against its stock while Tsai’s outstanding loans were “easily manageable” with “prudent loan-to-value ratios to provide [a] substantial cushion against triggering a margin call”.

The company added that share pledges were “ordinary financial planning to provide liquidity and diversification without having to sell shares in Alibaba”.

Alibaba Group Holding Ltd.’s largest individual shareholders Jack Ma and Joe Tsai pledged parts of their combined $35 billion stake in the e-commerce giant in exchange for significant loans from banks, the Financial Times reported, citing company documents.

The share pledges were made by offshore companies controlling more than half of the duo’s stake in Alibaba, which stood at 5.8% as of December, according to the FT. The documents didn’t disclose the amount of the share pledges, which began when Alibaba listed in the U.S. in 2014.

Ma and Tsai have a net worth of about $50 billion and $13 billion, respectively, with most of their wealth derived from their holdings in the e-commerce giant, according to the Bloomberg Billionaires Index.

The transactions allowed the two to access cash without selling stock — a common technique for company founders and the ultra-wealthy. Elon Musk has used stock in Tesla Inc. to obtain personal loans, Larry Ellison has put up millions of Oracle Corp. shares to fund his lifestyle, while SoftBank Group Corp. founder Masayoshi Son uses a web of global banks to borrow against his holdings.

Borrowing against the value of shares, as compared to selling them, offers tax advantages in the U.S. since only realized gains are subject to taxation. It also allows a founder to keep betting on their own company’s appreciation.

Still, there are risks. Some wealthy investors had to meet margin calls on pledged shares when markets plunged in the early days of the pandemic.