Alibaba Group Holding Ltd. filed its much-anticipated initial public offering (IPO) prospectus yesterday with the US Securities & Exchange Commission. The IPO—which will sell 12 percent of China’s largest e-commerce company—could raise as much as $20 billion, according to Bloomberg. If the Alibaba offering brings in that much, it will be the largest IPO in US history, surpassing Facebook’s $16 billion and Visa’s $18 billion offerings.

In the final nine months of 2013, Alibaba earned $6.5 billion in revenue and $2.9 billion in net income. According to the prospectus, Alibaba has set its own value at $109 billion. Outside analysts have priced the company as high as $250 billion, based on its growing, high-value user base. In 2013, it processed $248 billion for 231 million users on its three online marketplaces, more than double Amazon’s transaction value and triple that of E-bay’s. All told, e-commerce brought in more than 80 percent of Alibaba’s total revenue in 2013.

While the prospectus did provide important information about Alibaba, it also left many unanswered questions. It offered no breakdown for revenue among Alibaba’s online marketplaces, nor did it say how many shares would be sold at the IPO.

It also provided little information about what would happen if there were a legal dispute involving foreign shareholders. Since Chinese law forbids foreign investors from owning shares in China-based Internet and telecommunications companies, many tech firms are made up of two entities: one that holds all licenses and permits but lacks foreign ownership and one that is an offshore holding company known as a Variable Interest Entity (VIE). VIE revenue comes largely from fees collected from the China-based company.

Alibaba Group Holding is a Cayman Islands-based VIE, of which Yahoo owns 40 percent and Japan’s SoftBank owns 34 percent.

Alibaba has run into VIE trouble before. In May 2011 chairman Jack Ma transferred ownership of Alibaba’s payment arm Alipay from the holding group into another structure personally controlled by Ma. The dispute led to an agreement with Yahoo and Softbank in which Alibaba is guaranteed 37.5 percent of Alipay’s total equity value—at least $2 billion and up to $6 billion if the company ever goes public.

Posted by Catherine Matacic