Alibaba strengthens Alipay ties ahead of IPO

Alibaba strengthens Alipay ties ahead of IPO

Chinese e-commerce giant Alibaba has sold its SME loan business to the parent of Alipay in a move designed to increase the profits made on any future sale of the payments unit.

With nearly 300 million users, Alipay serves a similar role for Alibaba as PayPal does for eBay, processing around 80% of payments on the e-commerce site.

The payments business was sold by Alibaba in 2011 to Small and Micro Financial Services Company - which is controlled by the e-commerce firm's co-founder Jack Ma - over regulatory concerns.

But as Alibaba gears up for an initial public offering in New York next month, it has now sought to change the terms of its relationship with Alipay.

It has sold the loan business to Small and Micro Financial Services Company, in a $518 million cash deal. More importantly, a cap of $6 billion on any profits that Alibaba could make if Alipay or its parent are sold or go public, has been lifted.

Under the new terms, Alibaba will also now receive 37.5% of pretax income from Small and Micro Financial Company, compared with the 49.9% it has so far been getting from just Alipay.

In addition, Alibaba can buy up to a third of Small and Micro Financial Services Company if it gets the greenlight for Chinese regulators.

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