(Reuters) - Alibaba Group's biggest shareholders have backed a partnership structure that is at the center of a debate over where the Chinese e-commerce giant may list its shares in the most highly anticipated Internet IPO since Facebook Inc's $16 billion offer last year.
Alibaba, which analysts value at as much as $120 billion, appears to have failed to convince Hong Kong regulators to waive tough listing rules, potentially handing the lucrative IPO to rival U.S. market operators.
Founded by billionaire entrepreneur Jack Ma, Alibaba wants to find a home for its stock where its 28 partners, mainly founders and senior executives, can keep control over a majority of the board, even though they own only around 13 percent of the company.
In the first public comments from one of those partners, Executive Vice Chairman Joseph Tsai defended Alibaba's corporate structure on Thursday, saying it is a "living body" intended to preserve the company's culture.
While losing such a large IPO would be a blow to the Hong Kong stock exchange - Alibaba could seek to raise as much as $15 billion in the initial public offering - regulators there have stood firm in their defense of small investors and a policy of treating all shareholders alike.
"We understand Hong Kong may not want to change its tradition for one company, but we firmly believe that Hong Kong must consider what is needed in order to adapt to future trends and changes," Tsai, one of Alibaba's 18 founders in 1999, wrote in a blog post. (http://r.reuters.com/jyq43v)
On Friday, Alibaba received the backing of both Japanese wireless carrier SoftBank Corp and Yahoo Inc, its two largest shareholders with stakes of 36.7 percent and 24 percent, respectively.
"Alibaba has built a phenomenal business and created tremendous value for its shareholders over the years," SoftBank CEO Masayoshi Son said in a statement. "We are therefore very supportive of the Alibaba partnership structure."
In a brief statement, Jacqueline Reses, Chief Development Officer at Yahoo and an Alibaba board member, said: "In a fast-moving technology market, it's critical that a company's leadership can continue to preserve its culture and set its strategic course for the future."
"As one of Alibaba's largest shareholders, Yahoo believes that management's efforts reflect the desire to govern the company for long-term success while also balancing the rights of shareholders."
Tsai's defense of Alibaba's partnership model comes as debate rages in Hong Kong about whether the Asian financial hub should be more flexible to attract new and emerging companies.
Hong Kong Exchanges and Clearing Ltd (HKEx), which is both the regulator of new listings and a publicly traded company that benefits from IPO fees and subsequent stock trading volumes, has insisted that its first duty is to protect all shareholders.
In a lengthy blog post this week, the exchange's CEO Charles Li suggested maybe leaving open the door to potential rule changes, so long as discussions aren't rushed. He did not directly name Alibaba in his commentary.
Hong Kong's failure to secure the Alibaba IPO would mean lost revenues and less marketing clout to attract other deals. Alibaba commands 80 percent of China's e-commerce market and handled 1 trillion yuan ($163.4 billion) of goods last year through its Tmall and Taobao market platforms.
"The question Hong Kong must address is whether it is ready to look forward as the rest of the world passes it by," Tsai wrote. "As a company with most of our business in China, it was natural for Hong Kong to be our first choice."
"Those who lack appreciation of our partnership philosophy may view our proposal merely as a founder wanting to preserve control. We could not have a more different objective," he added.
Alibaba declined to comment beyond Tsai's post. A spokesman for the Hong Kong exchange declined to comment.
($1 = 6.1214 Chinese yuan)
(Reporting by Paul Carsten in BEIJING, Edwin Chan in SAN FRANCISCO, Mari Saito and Nobuhiro Kubo in TOKYO, Elzio Barreto and Denny Thomas in HONG KONG; Editing by Ian Geoghegan)