SecProbe.io

CORRESP
1
filename1.htm

SIMPSON   THACHER & BARTLETT

ICBC TOWER, 35TH FLOOR

3 GARDEN ROAD, CENTRAL

HONG KONG

TELEPHONE:   +852-2514-7600

FACSIMILE:   +852-2869-7694

DIRECT DIAL NUMBER
   +852-2514-7660

E-MAIL ADDRESS
   dfertig@stblaw.com

DRAFT

CONFIDENTIAL

October 25, 2019

VIA EDGAR

Division of Corporation Finance

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Attention:

Andrew Blume, Staff Accountant

Jennifer Thompson, Accounting Branch Chief

Re:

Alibaba Group Holding Ltd

Form 20-F for the Fiscal Year Ended   March 31, 2019

Filed June 5, 2019

File No. 1-36614

Ladies and Gentlemen:

On behalf of our client, Alibaba Group Holding Limited, a company organized under the laws of the Cayman Islands (together with its subsidiaries, the “Company” or “Alibaba”), we respond to the comments contained in the letter from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated September 26, 2019 (the “September 26 Comment Letter”), relating to the Company’s annual report on Form 20-F for the fiscal year ended March 31, 2019 filed with the Commission on June 5, 2019 (the “2019 20-F”).

Set forth below are the Company’s responses to the Staff’s comments in the September 26 Comment Letter.  The Staff’s comments are retyped below for ease of reference.

*       *      *      *

DANIEL   FERTIG

ADAM C.   FURBER

MAKIKO   HARUNARI

IAN C. HO

ANTHONY   D. KING

CELIA   C.L. LAM

CHRIS   K.H. LIN

JIN HYUK   PARK

KATHRYN   KING SUDOL

CHRISTOPHER   K.S. WONG

RESIDENT PARTNERS

SIMPSON THACHER & BARTLETT, HONG KONG IS AN AFFILIATE OF SIMPSON THACHER & BARTLETT LLP WITH OFFICES IN:

NEW YORK       BEIJING       HOUSTON       LONDON       LOS ANGELES       PALO ALTO       SÃO PAULO       TOKYO       WASHINGTON, D.C.

Item 4. Information on the Company

C. Organizational Structure

VIE equity holders after the VIE Structure Enhancement, page 117

1.              Please tell us and consider disclosing the specific selected members of the Alibaba Partnership or your management referenced in footnote (1) of your page 118 organization diagram.

The Company respectfully advises the Staff that, as of the date of its response, the Company has completed the VIE Structure Enhancement with respect to all five of the Company’s material VIEs as disclosed on page 115 of the 2019 20-F.  The Company does not believe the identities of the ultimate VIE interest holders are material information, because unlike the original structure, the VIE Structure Enhancement was designed to ensure that none of the individual holders has control over any VIE (as none of them holds more than 20% interest or voting power, while the partnership structure also ensures that any individual holder can be replaced any time with another member of the Alibaba Partnership or the Company’s management).  Notwithstanding the Company’s view as to the non-materiality of the identities of the particular partners and/or management who are the ultimate VIE interest holders, the Company is hereby providing the identities of the individual holders as follows.

The individual limited partners referenced in footnote (1) of the organization diagram on page 118 of the 2019 20-F for the PRC Limited Partnerships and individual shareholders of the general partners with respect to the five material VIE entities disclosed on page 115 of the 2019 20-F consist of:

·                  Daniel Yong Zhang, Jessie Junfang Zheng, Xiaofeng Shao, Judy Wenhong Tong and Angel Ying Zhao (with respect to each of Zhejiang Taobao Network Co., Ltd.; Zhejiang Tmall Network Co., Ltd.; Alibaba Cloud Computing Ltd.; and Hangzhou Alibaba Advertising Co., Ltd.); and

·                  Sophie Minzhi Wu, Trudy Shan Dai, Jeff Jianfeng Zhang, Fan Jiang and Winnie Jia Wen (with respect to Youku Information Technology (Beijing) Co. Ltd.).

Each of the above individuals is a partner of the Alibaba Partnership.  The Company respectfully advises the Staff that it will disclose the identities of the specific individuals described in the abovementioned footnote of this organization diagram for its material VIEs in all its future annual reports on Form 20-F, starting with its annual report on Form 20-F for the fiscal year ending March 31, 2020.

2

Item 18. Financial Statements

Notes to Consolidated Financial Statements

4. Significant restructuring transaction, mergers and acquisitions and investments

(b) Acquisition of Alibaba Pictures Group Limited (“Alibaba Pictures”), page F-41

2.              We note that you consolidated Alibaba Pictures Group Limited (“Alibaba Pictures”) in fiscal 2015, deconsolidated it in fiscal 2016, and consolidated it again during fiscal 2019. We further note that you recorded significant gains during fiscal year 2015 and 2019 related to these transactions and also recorded a significant impairment of your Alibaba Pictures investment during fiscal 2018. Please address the following comments related to your investment in Alibaba Pictures:

·                  Provide us with a complete historical narrative of your transactions involving Alibaba Pictures. In doing so, tell us the business purpose and intent of the transactions causing the consolidation changes. Tell us why you decided to acquire a controlling interest in Alibaba Pictures in June 2014, why you decided to relinquish control over Alibaba Pictures by not participating in the June 2015 financing transaction, and why you decided to participate in the March 2019 equity offering at a level that resulted in a controlling equity interest rather than merely maintaining your 49% equity interest. If currently known, also provide us with a forward-looking view of your investment intentions.

The Company respectfully advises the Staff that the multiple transactions involving Alibaba Pictures referenced in the Staff’s comment above reflected the different stages, starting from 2014, of the Company’s exploration and formulation of strategies to provide digital media and entertainment services to consumers in its digital economy, which the Company has since referred to as its “Happiness” strategy.

Alibaba Pictures was one of the targets the Company identified in the early stages of formulating its digital media and entertainment strategies. In June 2014, the Company acquired control of Alibaba Pictures by purchasing newly-issued ordinary shares representing approximately 60% of the equity interest in Alibaba Pictures for a total cash consideration of HK$6,244 million, which was then equivalent to approximately US$806 million.

After the Company’s initial investment in Alibaba Pictures in 2014, the Company found that it was not yet able to integrate this new business into the Company’s long-term strategy as quickly as expected, partly due to the Company’s lack of relevant industry knowledge and operational experience.  The Company also realized that it would require more time and capital than originally contemplated to achieve synergies with Alibaba Pictures’ business.  Therefore, starting from 2015, the Company took a more cautious approach towards Alibaba Pictures and its business, and decided not to participate in Alibaba Pictures’ June 2015 financing round, in which Alibaba Pictures placed newly-issued ordinary shares to unrelated third-party investors raising gross proceeds of HK$12,179 million (or approximately US$1,571 million). The  Company’s equity interest was therefore diluted to 49.5% upon the completion of that placement. The Company believed that, although it no longer controlled Alibaba Pictures, its significant influence over Alibaba Pictures associated with this remaining equity interest would still allow the Company to continue exploring initiatives that would facilitate integration of Alibaba Pictures’ business into the Company’s ecosystem over time.

3

In November 2015, when the Company sold certain movie-related businesses to Alibaba Pictures, the Company continued the above cautious approach by receiving cash consideration of approximately US$520 million instead of acquiring more equity, so as to maintain its 49.5% equity interest and substantial influence while avoiding control over Alibaba Pictures. The Company believed that these businesses would help strengthen Alibaba Pictures’ core competence and that the transaction would enable the Company to continue exploring the integration of their various online and offline entertainment-related offerings.

Starting from 2016, the Company’s digital economy and businesses, including core commerce, local consumer services, Youku and other digital media entertainment initiatives, had all expanded significantly. After three years of efforts to address increasing customer demand for services and entertainment beyond physical goods and to compete effectively, the Company believed that it had formed a clearer view on how to build competitive strengths and better drive synergies across its various consumer-facing businesses. As a result, the Company increased its stake to approximately 51% and regained control over Alibaba Pictures in March 2019 by subscribing for newly-issued ordinary shares for a cash consideration of HK$1,250 million (approximately US$159 million).

The Company does not currently have forward-looking investment intentions with respect to Alibaba Pictures.  The Company respectfully advises the Staff that it recorded significant one-time gains during fiscal years 2016 and 2019 related to these transactions as a result of GAAP rules and regulations.  The Company has also provided and presented a number of non-GAAP financial measures — which excluded these one-time gains — to help investors better understand the Company’s core operating results and underlying trends in the Company’s business.

·                  Please tell us how you determined the fair value of your previously held Alibaba Pictures investment on the date of your March 2019 acquisition. If the amount was not entirely based on the publicly traded stock price of Alibaba Pictures, explain to us in sufficient detail the method used to determine fair value and why you believe the method employed was appropriate.

4

The Company respectfully advises the Staff that, as disclosed in Note 4(b) to the consolidated financial statements, the fair value of its previously held equity interest in Alibaba Pictures amounting to RMB16,229 million was estimated with reference to the market price per share as of the acquisition date. More specifically, this amount was calculated entirely based on  the closing market price of the stock of Alibaba Pictures traded on the Hong Kong Stock Exchange (“HKSE”) (i.e., HK$1.52 per share as of March 5, 2019 multiplied by 12,488,058,846 shares of Alibaba Pictures that were previously held by the Company).

·                  We note that you deconsolidated Alibaba Pictures during fiscal 2016 when shares were issued to third party investors and your ownership percentage fell below 50%. Citing authoritative GAAP literature, explain in sufficient detail your consolidation policy, including whether you assess Alibaba Pictures for consolidation under the variable or voting interest model. Ensure you fully explain shareholder rights, board composition, and any contractual arrangements that influence control. If Alibaba Pictures is a voting interest entity, explain to us if you are able to unilaterally control whether or not your investment exceeds 50%.

The Company advises the Staff that Alibaba Pictures was not considered a variable interest entity under ASC 810, as it qualified for the business scope exception under ASC 810-10-15-17(d). In case of a contrary view that the business scope exception under ASC 810-10-15-17(d) was not met, the Company performed a further analysis to determine whether Alibaba Pictures was subject to consolidation under the VIE guidance. A legal entity is subject to consolidation under the VIE guidance if, by design, any of the conditions in ASC 810-10-15-14 exists. Under such analysis, the Company concluded that Alibaba Pictures was not a VIE and therefore the VIE model was not applicable.

In accordance with ASC 810-10-15-3, as the VIE model was not applicable, the voting interest model was followed to assess whether the Company had control over Alibaba Pictures and therefore should consolidate its financial results. In accordance with paragraph 66(1) of the Bye-laws of Alibaba Pictures (“Alibaba Pictures Bye-laws”), each share is entitled to one vote at the general meetings of Alibaba Pictures. Therefore, when the Company’s equity interest was diluted from approximately 60% to 49.5% in June 2015, its voting interest no longer represented a majority. The guidance in ASC 810-10-25-1 provides that “[t]he usual condition for a controlling financial interest is ownership of a majority of voting interest, but in some circumstances control does not rest with the majority owner.” As a result, although the Company no longer owned a majority voting interest, it also assessed whether it was able to exert control through other arrangements.

5

1.                                      Board of Directors of Alibaba Pictures (the “Alibaba Pictures Board”)

In order for the Company to control the Alibaba Pictures Board, it must have the unilateral ability to appoint or elect a majority of the members of the Alibaba Pictures Board. The Alibaba Pictures Bye-laws did not provide the Company with the ability to appoint or elect a defined number of directors. Instead, in  accordance with paragraph 86(2) of the Alibaba Pictures Bye-laws, a director is appointed by the Alibaba Pictures Board in two ways:

(a)                                 The Alibaba Pictures Board can appoint any person as a director to fill a casual vacancy, who shall hold office until the first general meeting of Alibaba Pictures after his appointment and be subject to re-election at such meeting.

(b)                                 Subject to authorization by the shareholders, the Alibaba Pictures Board can appoint any person as a director as an addition to the existing Alibaba Pictures Board, who shall hold office until the next following annual general meeting of Alibaba Pictures and shall then be eligible for re-election.

In addition, according to paragraph 86(4) of the Alibaba Pictures Bye-laws, shareholders may remove a director at any time before the expiration of his period of office by ordinary resolution at any general meeting. Given that the Company only held 49.5% of shareholder voting interest, the other shareholders as a group were able to remove any director appointed by the Alibaba Pictures Board. In other words, the Company did not have the unilateral ability to change the composition or elect/appoint a majority of the Alibaba Pictures Board. Furthermore, according to paragraph 169 of the Alibaba Pictures Bye-laws, a majority of not less than three-fourths of votes cast by shareholders at a meeting is required to amend the Bye-laws. Therefore, the Company did not have the unilateral ability to amend the Alibaba Pictures Bye-laws with its 49.5% voting interest.

2.                                      Appointment of executive officers

Per paragraph 128(1) of the Alibaba Pictures Bye-laws, its officers are appointed by the Alibaba Pictures Board and shall hold office on such terms and for such period as the Alibaba Pictures Board may determine. Paragraph 130 of the Bye-laws also states that Alibaba Pictures’ officers shall have such powers and perform such duties in the management, business and affairs of Alibaba Pictures as may be delegated to them by the directors from time to time.  Given that the Company did not have the ability to control the Alibaba Pictures Board, it did not have the unilateral ability to terminate or change the appointment of officers. Furthermore, as discussed above, the Company did not have the unilateral ability to amend the Alibaba Pictures Bye-laws