Xu Yi Li Talked About Why The United States Warned Ali Listing.

Here world clothing shoes The Xiaobian of the hat net is to introduce Xu Yi Li: why would the United States warn Ali to go public?

Alibaba group launched its IPO roadshow in the US capital market. However, what is expected is that not long ago, the US China Economic and Security Review Committee, which was affiliated with the US Congress, announced that US investors were facing "significant risks" in investing in China Internet Corporation like Alibaba group using VIE structure.

It is hard to say that Alibaba will not be affected if we choose to publish a specific report on such hypersensitive moments when the Alibaba is ready to go public. How much impact will it have?

To answer this question, we must clarify the VIE structure from the root.

At present, there are three kinds of Chinese shares listed overseas: one is direct listing, one is the popular red chip mode ten years ago, and the other is the VIE mode. In these three models, except for a large number of large enterprises such as PetroChina, which have the ability to go abroad directly, the listing mode of the red chip model has been the mainstream mode of overseas listing of Chinese enterprises.

The general operation process of the so-called shell listing is: first, the actual controller of the domestic enterprises set up shell companies (BVI) in the offshore islands of the British Virgin Islands and the Cayman Islands in the name of individuals; the second step is to inject domestic equity or assets into the shell companies in the form of capital increase and expansion; the third step is to raise funds in the stock market of Hongkong, the United States and Singapore in the name of shell companies, so as to achieve the curve listing overseas of domestic enterprises. In this way, the investment and exit of private equity fund will take place in offshore regulation.

But everything changed. The regulations on mergers and acquisitions of domestic enterprises by foreign investors (No. 10), issued in August 2006, and the catalogue of foreign investment industries revised in 2007, have made the popular mode of listing red chips on the stock market almost stagnant. The purpose of these documents was to strengthen the supervision of foreign investors in acquiring domestic enterprises and assets. For this reason, six ministries and commissions such as the Ministry of Commerce, the SASAC and the SFC jointly promulgated the document No. 10. With special chapters, the details of the cross-border stock exchange of BVI company were stipulated, and it was stipulated that the establishment of BVI by natural or legal persons within the territory must be submitted to the Ministry of Commerce for approval. The listing of overseas listing must be approved by 6 ministries and commissions. Under such circumstances, the vast majority of Internet companies will not be able to do so, because the Internet business (that is, value-added telecom services) is restricted by foreign investment (the maximum shareholding of foreign capital should not exceed 50%), so the Off Shore Company (regarded as a foreign capital) will not be able to acquire wholly domestic entities.

Since the introduction of this regulation, no Chinese enterprise has tried to obtain the approval of these ministries. The main problem is that the rules can be implemented poorly. There is no clear explanation on how to approve or even divide the work between the six departments. The result is that all companies preparing for the US listing do not want to take this path at all, but try to circumvent it.

How does it work? This is the VIE architecture. Therefore, from a historical perspective, VIE is the most radical improvement of the red chip mode.

VIE, literally called variable interest entity, is an expression abroad, and is called "protocol control" in China. Protocol control can be said to be one of the greatest inventions in the capital market, and there are not so many Chinese capital stocks listed overseas.

The specific operation mode is as follows: first, domestic shareholders set up BVI company, generally speaking, each shareholder needs to set up BVI company separately (which is chosen by BVI company because of its simple registration and high secrecy advantages); the second step is to set up Cayman Company Incorporation as the main body of listing with the above BVI company and venture capital as shareholders; the third step is to set up Hongkong shell company; the fourth step: Hongkong shell company set up wholly foreign-owned subsidiary company (WFOE) in the territory; fifth step: WFOE signed a series of agreements with domestic funded companies to achieve profit transfer and meet the standards of us VIE accounting standards.

See, the difference between the VIE structure and the red chip mode is that it controls the domestic license companies through multiple agreements under the VIE agreement instead of ownership. Through the VIE agreement, the listed companies get the control and management rights of the domestic license companies, thus achieving the merger of financial statements. The core function of protocol control is to satisfy the requirements of the table. It is a company, in law, you are not its shareholder, but according to the accounting standards, it has a financial statement.

The key is how to control it. Since VIE is called protocol control, the key point is protocol control, which is very complicated. WFOE and domestic licensed companies usually need at least a number of agreements to achieve their control and control relationship, mainly including 1, asset operation control protocol, through which WFOE is substantially controlled by Target Corp. Assets And operation; 2, the loan contract, that is, WFOE loans to Target Corp shareholders, and its shareholders are based on equity pledge; 3, equity pledge agreement, subscription option agreement. When legal policy allows foreign investment to enter the field where Target Corp is located, WFOE can propose to acquire shares of Target Corp and become a controlling shareholder. 4, voting rights agreement, through this agreement, WFOE can effectively control the decisions of the board of directors of Target Corp or directly distribute to the board of directors. 5, exclusive service agreement, which stipulates that intellectual property rights and services required by the company's actual business operations are provided by WFOE, while the profits of Target Corp are paid to WFOE by means of service fees and royalties.

Of course, each VIE protocol is slightly different, because the protocol control was invented by Sina project at that time. Without the VIE structure, there will be no Internet and innovation industries in China today. It is said that Sina's VIE was acquiescence by the Ministry of production, after all, it solved the core policy of foreign investment. As an operation company, it is internally funded in the ownership structure, and there is no obstacle in the operation qualification. Big fat in China, people who want to eat meat in foreign countries, through this agreement control, under the international accounting standards, foreigners who want to eat meat are suddenly identified as the master and the actual controller of the big fat. They can eat whatever they want at a time, not only can they eat, but also can sell, so they will be listed on the market so that everyone can participate.

It is very subtle that no Chinese government department has publicly acknowledged the VIE agreement, but it has never explicitly stated that VIE can not be used. The Chinese government declares its subtle attitude in ambiguous legal language, and plays Tai Chi with artistic words in sensitive situations. VIE it's always going grey.

In fact, everyone knows that if it goes on like this, it has great risks. So the United States suddenly mentioned this matter on the eve of the listing of Ali, which has to be reconsidered.

The first big risk of VIE architecture is policy risk. As mentioned above, the relevant departments of the state have tacit approval of the VIE structure, and there is no substantive operational definition. Once the relevant ministries and commissions of the state have issued corresponding regulations, they may have a great impact on the companies adopting VIE structure.

The second risk is also the biggest risk, which lies in controlling risks. Perhaps in the eyes of the United States, Alibaba has criminal record. In mid June 2011, Alibaba group transferred Alipay's ownership to another Chinese domestic company owned by Ma Yun. Alipay's holding company promised to give Alibaba group a one-time cash return when listing. The amount of return is 37.5% of the total market value of Alipay when it is listed. The price will be no less than US $2 billion and not more than 6 billion US dollars, based on the IPO price. The transfer made YAHOO unwilling, but the transfer of assets was still contrary to its wishes.

It seems that for American investors, the biggest risk of VIE structure is that China's shareholders will shift the company's assets and ignore the legal arrangements based on the VIE structure. The essence of this is the fact that the VIE structure actually divested the actual control power of foreign capital to the relevant enterprises. Generally speaking, the voting rights of C of foreign listed companies and their corresponding decision-making power are very limited.

Of course, there are still many big risks in the VIE architecture. For example, the risk of foreign exchange control. In the VIE structure, from the initial establishment of Special Purpose Company, until the final domestic profit transfer overseas, foreign exchange control has always existed.

(1) control of foreign exchange settlement. The foreign-funded enterprises under the VIE structure are enterprises with special purposes. They need to convert large amounts of registered capital into Renminbi to be used by domestic enterprises, which is not in line with the provisions of the state's foreign exchange policy. Therefore, a lot of reasonable business arrangements with related enterprises have been generated to transfer foreign capital funds to domestic enterprises. However, in order to reduce costs, some enterprises will make use of the urgent mood of local governments to attract investment and make use of "reasonable business arrangements" to apply for tax relief and collect invoices for a large number of settlement purposes.

(2) transfer of profits to overseas controls. If a non China run shell company needs cash, it can only rely on the dividend paid by VIE to its controlling party and its registered company. However, shell companies can not guarantee a continuous dividend distribution under existing structures, nor will they be able to pay them to the environmental shell companies through the audit of the foreign exchange management department.

Not to mention hidden tax risks, we will not list them here.

No one has to admit that for the Chinese enterprises listed in the US, the problem of VIE itself is really a barrier. Let alone the fact that there are still some more difficult problems in the actual operation, mainly in the US's ignorance of Chinese corporate culture.

In contrast, many Chinese companies listed in the us do not operate in accordance with international practices, such as the exchange of capital markets, which do not meet the expectations of shareholders. So muddy water, citron and other short selling agencies are often short of Chinese concept stocks. They are wrong, but the essence is still in China's own companies. These companies often retain Chinese characteristics, and are unwilling to admit problems immediately, and want to hide and not communicate. The actual controllers prefer to has the final say. These are not things that can change overnight. Many investors in the capital market have no way to know and asymmetric information. Is this the essential reason for these organizations to do the air speculation? No wonder others.

Maybe you will say that the risks of VIE are all American investors, which are just cheaper for our Chinese enterprises, and more in line with the actual control requirements of our domestic enterprises. But this is not a long way to go. The Chinese government must start to face the legitimacy of VIE. China has begun to focus on the development of innovative industries, which require huge amounts of foreign capital and technological support. A legitimate and legal VIE system is the beneficiary of China's Internet industry and all innovative industries.

Fortunately this time, the warning of the United States will be right. Alibaba The listing estimate has little effect. After all, this is not an organ representing government administration. It is only a think tank under the Congress. It has no decision-making power. It doesn't even represent Congress. At the beginning of the report, it has been clarified that this is only a "staff report" and does not represent any congressman's opinion. In essence, VIE risk should be borne by the capital market, not by SEC as a goalkeeper. The duty of SEC is to examine whether the prospectus is true and everything else is irrelevant.

But in the future, has VIE been going on in the grey area? Should management make some actions to eliminate hidden dangers, in fact, it is not a support for our own industries?