Alibaba Group Holding Limited (NASDAQ: BABA) has rubbed the all-powerful Chinese Communist Party the wrong way, and as a result, the e-commerce giant has been facing increased regulatory scrutiny.
What Happened: Antitrust regulators in China are mulling the imposition of a fine of over $975 million on Alibaba, the Wall Street Journal reported Thursday, citing people familiar with the matter.
If the fine materializes, it would be the highest fine paid in Chinese corporate history.
In 2015, QUALCOMM Incorporated (NASDAQ: QCOM) paid $975 million to settle antitrust investigations over anti-competitive practices.
Late last year, Chinese regulators began clamping down on Alibaba and its Ant Financial subsidiary.
Ant Financial was reprimanded for being a risk to the financial system, and was asked to enact changes that could severely impede its business prospects.
Alibaba had to shelve IPO plans for Ant Financial.
Related Link: Why This Analyst Says Investors Should Buy Alibaba’s Recent Weakness
After adopting a soft stance toward Alibaba early on, given its dominant market positioning in China and popularity among global investors, regulators have now said the e-commerce giant must disassociate from its founder Jack Ma or face the music, the WSJ report said.
The fine will come into play if Alibaba doesn’t fall in line with the local Communist Party’s diktats and does not terminate the policy of asking local merchants to maintain exclusive relationships with Alibaba, the report said.
Alibaba may also be forced to divest some businesses that are non-core to its core retail operations.
What’s Next: Alibaba has deep pockets and can afford to pay off any potential fine. Some company executives opine that paying off the fine will remove an overhang around the company and its shares.
Alibaba’s stock, which pulled back late last year following the regulatory scrutiny, began to stage a recovery in the new year.
The tech sell-off that was set in motion in February has led to renewed selling in the stock.
BABA Price Action: At last check, Alibaba shares were rising 2.8% to $240.85.
Related Link: How to Buy Alibaba (BABA) Stock
Alibaba co-founder Jack Ma. Benzinga file photo by Dustin Blitchok.
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