The Chinese Founders of Alibaba, Jack Ma, and Joe Tsai staked their holdings in the company in exchange for loans from investment banks, according to the reports by FT on Friday.
- The share pledges, made to major investment banks, including Goldman Sachs, UBS, and Credit Suisse among others, were completed by offshore companies with more than 50% of the two billionaires’ holdings in Alibaba, amounting to 5.8%.
- The process of share pledging is risky, and most companies in the United States prevent their executives from using stocks as collateral for loans.
- In case of default, the forced selling of the pledged stocks might lead to an adverse fall in the share price of the company.
- US Companies such as Tesla are required to make full disclosures of share pledges undertaken by their executives, including the disclosures by Elon Musk.
Global investment banks have advanced a wide range of credit to the two Alibaba founders. Tsai mortgaged his Gulfstream 650ER private jet to Credit Suisse.