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Alibaba Scandal Doing Shareholders No Favors

Corruption probe of party official hitting stock that's already down sharply, Alex Frew McMillan notes.

Long-suffering Alibaba stockholders have been hit again.

Alibaba's  (BABA) - Get Alibaba Group Holding Ltd. Report  Ant Group affiliate  targeted by China’s government over a bribery scandal. The stock has fallen 9.4% since the news came out late last week.

The stock has lost roughly 60% of its value since peaking in lat 2020.

“Chinese state broadcaster CCTV aired a show last week providing details on a corruption probe into the Hangzhou party secretary, Zhou Jiangyong,” wrote Alex Frew McMillan in Real Money. “Although Zhou has been under investigation by China's anti-corruption watchdog since last August, there's been no inkling of why.”

In addition "CCTV stated that unnamed private businesses bought land at cut-rate prices from the city of Hangzhou, after they invested in two mobile-payments companies owned by the party secretary's brother," McMillan noted.

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“A bit of detective work by the Financial Times found that it was an Ant Group unit that bought two plots of land in Hangzhou in 2019, and invested in the mobile-payments companies,” McMillan added. “Both Alibaba and Ant are based in Hangzhou. The Ant subsidiary was the only outside investor in one of the payments companies.”

CCTV said the investments were "unreasonably high payments" to Zhou's brother, in return for positive government support and help buying land.

“Zhou's brother set up a company that won mobile-payments contracts for the subway in the cities of Ningbo and Wenzhou, where his brother was party secretary at the time,” CCTV reported. The younger Zhou then set up a company to win the subway-payments business in Hangzhou, where his brother was now in charge.

The impact could see Ant forced to return the land, and potentially fined, with possible action against the executives involved as well. Ant and Alibaba could have bigger problems if the corruption authorities decide there's a broader pattern at work.

Alibaba shares have fallen 53.8% in the last year.

“That has driven what was Asia's largest company by market capitalization well down in the rankings, with chipmaker Taiwan Semiconductor Manufacturing (TW:2330) and (TSM) wrestling that title away,” McMillan noted.

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