27 October 2016
Short sellers had borrowed more than 124 million Alibaba shares by last week. Photo: Bloomberg
Short sellers had borrowed more than 124 million Alibaba shares by last week. Photo: Bloomberg

Alibaba bears pounce amid SEC probe, SoftBank stake sale

Traders have never been more bearish on Alibaba Group Holding Ltd., the dominant Chinese e-commerce company, which is facing a regulatory probe and the loss of a key investor.

The total number of outstanding shares borrowed for short selling peaked at more than 124 million last week, Bloomberg reports.

That’s the most since its 2014 initial public offering and is up from about 60 million in December, Bloomberg and Markit Ltd. figures show.

Prominent short sellers including Jim Chanos and John Hempton have been red-flagging Alibaba for months, suggesting that its growth figures might be too good to be true.

Bearish bets spiked in the past two weeks after the company disclosed a probe by the US Securities and Exchange Commission of its Chinese delivery unit and Japanese technology giant SoftBank Group Corp. disclosed plans to sell a US$10 billion stake.

“There’s been an accumulation of factors making it more and more attractive for short sellers to target Alibaba, while the SEC investigation and SoftBank share sale added a lot of pressure,” Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles, was quoted as saying.

“If the SEC was to find Alibaba’s accounting isn’t proper and Alibaba has to restate its results, that’ll be very detrimental.

“Because Alibaba’s so high profile, it will cast an even greater shadow on Chinese companies listed in the US.”

The firm’s share price has dropped 6.4 percent since May 25, when the company said the SEC is looking at data reported from the company’s Singles’ Day promotion, Alibaba’s biggest shopping day, and how the company consolidates results from affiliates, including logistics partner Cainiao Network.

While SoftBank’s divestment comes as part of a broader strategy to find new investments in startups and strengthen its debt-heavy balance sheet, the move can be unsettling to investors, as the Japanese firm first bought into the company 16 years ago, Henry Guo, a New York-based analyst at M Science, was quoted as saying.

– Contact us at [email protected]


EJI Weekly Newsletter