Business News

CCTV Script 26/05/16

– This is the script of CNBC's news report for China's CCTV on May 26, Thursday.

Welcome to CNBC Business Daily, I'm Qian Chen.

Chinese e-commerce giant Alibaba said it was under investigation by US securities regulators over whether its accounting practices had violated federal securities laws.

Alibaba said in its annual filing with the SEC on Wednesday that it had provided the agency with documents and information about its policies for consolidating affiliated companies and its practices for related-party transactions.

The company's share tumbled nearly 7% during Wednesday's trading session.

Alibaba said it had also provided information about how it reports data about Singles Day, China's e-commerce holiday in November, for which Alibaba widely trumpets the total amount of goods its vendors sell on its sites.

So far, it is still unclear whether the investigation will have an impact on Alibaba.

[GIL LURIA, Wedbush Securities Managing Director covering Financial Technology] "This has been a public conversation for the last year, there's been some short-sellers that haven made accusations regarding Alibaba's relationship with its affiliates and how it consolidate its accouting. So it's almost a matter of time until the SEC decided those concerns are wild and broad enough that needed to investigate them."

The focus of the commission's investigation appears to be similar to concerns voiced last year by some short-sellers and by Pacific Square Research, a research firm.

In particular, Pacific Square had raised questions about whether Alibaba should consolidate its logistics affiliate, Cainiao Smart Logistics Network. Alibaba has a 47 percent stake in the company.

Alibaba has drawn the SEC's attention in the past over alleged sales of fake goods on its Chinese website, and analysts have raised concerns about its use of financial measures that don't comply with generally accepted accounting principles, or GAAP, and because it doesn't consolidate results of some affiliates.

Alibaba has said it cooperated with the past request, and has provided greater financial information in its latest annual report.

[GIL LURIA, Wedbush Securities Managing Director covering Financial Technology] "The logistics operation is a money-losing operation. If Alibaba was to consolidate it, it would depress their margins, they would'not have looked attractive, it could depress the stock price. So what they are doing is that they only own 47% of that logistics company and they dont need to consolidate it to their numbers. The allegation is they actually control that logistic company and should consolidate which would depress the margins. That's what the SEC needed to decide."

Alibaba added that it was voluntarily cooperating with the commission and that the investigation was not an indication that it had violated any law.

Earlier this month, Chief Financial Officer Maggie Wu said the company would begin to provide greater transparency on its businesses by introducing annual revenue guidance and releasing new business cost structures and margins.

Still, Tuesday's regulatory disclosure follows investor complaints about the prior lack of financial information on affiliate companies, including its Cainiao delivery and fulfillment provider. Alibaba doesn't count losses at Cainiao as part of its own results, making it difficult for investors to determine how the company is performing, research firm Pacific Square Research said last October.

CNBC's Qian Chen, reporting from Singapore.

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