Securities and Exchange Commission of the United States of America, which is the enforcing agency for security laws in the country, has decided to add Chinese tech giant Alibaba Group Holding Limited to the list of companies that might be delisted.
SEC which is a federal agency and regulator of capital markets in the United States have been behind Chinese companies such as Alibaba for a very long time.
According to news reports, the SEC has ordered Alibaba to submit its books of accounts with the agency as soon as possible. The books of accounts of the multimillion-dollar company are currently with auditors in China.
This move by SEC comes amidst a report by the Wall Street Journal that the cofounder of Alibaba Group, Jack Ma, is planning to recuse himself from the control of Ant Group. Ant Group which is an affiliate business entity of Alibaba Group is into the business of providing financial payment services etc. The move by Jack Ma to cede control of Ant Groups comes after strict orders from Chinese authorities and market regulators regarding the decoupling of Alibaba and Ant Group from each other.
If SEC plans to go ahead with the demands for submitting books of accounts, and the Alibaba company does not comply with it, the SEC would eventually delist the company from capital markets in the country.
Alibaba, which was founded by Jack Ma in 1999 as a B2B Chinese marketplace got listed on New York Stock Exchange in September 2014. The company raised nearly 25 billion dollars from that initial public offering, which gave the company a total valuation of 231 billion dollars.
If the delisting happens, Alibaba would be facing a major crisis which would affect its financial condition severely. The company would have to handle investors and there are also possibilities of getting slapped with multiple lawsuits.
Jack Ma stepping down from the control of Ant Group, SEC actions in the USA and regulatory issues in China would make it a difficult quarter for the Chinese tech giant.
Why would Alibaba get delisted?
Public Company Accounting Oversight Board, otherwise known as PCAOB is an organization in the United States which acts as watchdog and oversee auditing activities of various public companies. Unlike SEC, PCAOB is not directly a federal agency but a non-profit organization. All members of PCAOB are appointed by SEC.
Now, this PCAOB has the power to audit any public companies, including companies based in China like Alibaba group holding limited.
PCAOB whenever necessary have the power to call upon these companies to submit their accounts books as and when necessary.
Chinese companies do not keep their account books out of China for various reasons such as security and secrecy. Chinese government allegedly have unwritten rules regarding companies giving access to account books to foreign entities.
Now if PCAOB calls upon a company to submit the books, and the business entity does to give any access to the books to PCAOB, the company will then be delisted.
According to reports, there are at least 270 Chinese companies which are on the verge of getting delisted from US capital markets.