(Bloomberg) — 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.
Ma and Tsai pledged their shares to banks including UBS Group AG, Credit Suisse Group AG and Goldman Sachs Group Inc., the newspaper reported. Tsai’s Gulfstream 650ER private jet is mortgaged to Credit Suisse, and the Swiss bank also extended financing to a firm later connected to Ma buying a luxury home in Hong Kong.
Alibaba told the FT that co-founder Ma and his affiliates currently didn’t have any loans outstanding collateralized by the company’s shares. In Vice Chairman Tsai’s case, his outstanding loans backed by shares were easily manageable, with prudent loan-to-value ratios to provide a substantial cushion against triggering a margin call, the report cited Alibaba as saying.
(Updates with wealth estimate in third paragraph.)
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