Alibaba and liberty

A Chinese company wishes to raise capital in the US. The US investors wish to invest in the Chinese company.

The Chinese regulators do not allow the company to sell shares directly into the US markets, so the company creates an entity that, while it does not hold the assets of the company, has a right to all future cash-flow generated by the Chinese company and lists it in the US. The US investors buy it and now the US legislators and regulators are concerned and objecting to it. In the middle of it all, the structure created to allow this is in the Cayman Islands, so some quickly point that out in a pejorative manner.

What is really at the core of all this? Freedom. Freedom to sell a company to investors and freedom for the investors to decide what to buy. Chinese regulators already tried to forbid it, US regulators think they should too.

What does Cayman do? We believe in freedom. We believe in the right of investors to chose how to invest their money, through a fully transparent structure that never pretended to be what it is not.

Why Cayman? Because the company understood that it needed a structure governed by a globally accepted rule of law, and that attempting to create that structure directly in the US (which would have been accepted by US investors) would generate a taxable event making the offering economically unviable.

So, no surprise from the Chinese where liberties have been limited by the state for hundreds of years, but is the US still the land of liberty or is Cayman’s role in these transaction a sign of a much bigger issue?

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