Five of the six new units created under Alibaba Group Holding’s restructuring plan could potentially seek IPOs, bringing some hope to the Hong Kong IPO market which saw a 50% year-on-year drop in funds raised in the first quarter.
The Chinese e-commerce giant, which has a market capitalisation of around US$270bn, announced on Tuesday night it would restructure its business into six subsidiaries: Cloud Intelligence Group, Taobao Tmall Business Group, Local Services Group, Global Digital Business Group, Cainiao Smart Logistics and Digital Media and Entertainment Group.
Apart from Taobao Tmall Business Group, which will remain wholly owned by the parent, the other five business groups will have the flexibility to raise outside capital and potentially seek their own IPO, according to Alibaba.
The US and Hong Kong-listed company said it aimed to become more agile, while enhancing decision-making, enabling faster responses to market changes and promoting innovation through the restructuring.
Each unit will have its own CEO and board of directors, with Alibaba’s chairman and CEO Daniel Zhang also serving as the CEO of Cloud Intelligence Group.
Cloud and logistics
Even before the restructuring news, bankers had been in talks with Alibaba for the potential Hong Kong listings of some businesses such as logistics provider Cainiao, according to people familiar with the situation. The listing process for Cainiao is now expected to accelerate.
Bankers believe investors will be interested in the cloud intelligence and logistics businesses, and that units which have already gone through private financings such as Cainiao and Ele.me, a food delivery platform under Local Services Group, have a higher chance to go public first.
Alibaba CFO Toby Xu told investors on Thursday that each unit can pursue independent fundraisings and IPOs when they are ready, without saying when or where this might take place.
ECM bankers generally believe the units will list in Hong Kong to avoid the risk of political tensions between China and the US derailing the transactions.
“These are going to be big events for banks that are close to Alibaba, such as Morgan Stanley, JP Morgan, Citigroup and CICC. These high-profile IPOs will help draw investors’ attention back to the lacklustre Hong Kong IPO market,” said an ECM banker.
After a slow 2022, Hong Kong's IPO market continues to struggle, with just HK$6.7bn (US$853m) raised in the first quarter, down 50% from a year earlier.
However, some bankers and analysts reckon it will take some time before the units can launch IPOs as most of them are loss-making.
“The potential for external funding and IPOs for each unit is promising, but it may not be as easy as it seems,” according to a research report from LightStream Research analyst Oshadhi Kumarasiri.
Taobao and Tmall are the only genuinely profitable business lines and Alibaba has been using their cashflows to finance the other businesses over the years, he said.
Besides the cloud business, the other four units all posted adjusted Ebita losses for the six months ended September 30, according to Alibaba’s latest interim report.
Cainiao had the smallest loss of Rmb60m (US$8.7m), followed by a Rmb747m loss for Digital Media and Entertainment Group (which includes Youku and Alibaba Pictures). Local Services Group posted a loss of Rmb6.5bn, while Global Digital Business Group, which houses the international commerce businesses including Lazada and AliExpress, had a loss of Rmb2.5bn.
Alibaba’s restructuring plan came a day after the company’s founder Jack Ma returned home from a long overseas stay. Some have interpreted Ma’s return and Alibaba’s overhaul as a sign that China’s regulatory crackdown on technology giants is coming to an end and Beijing is again supporting the growth of private enterprises.
Shares in Alibaba reacted positively to the news, jumping 14.3% in the US on Tuesday and surging 12.2% to HK$94.55 in Hong Kong on Wednesday.
However, Kumarasiri at LightStream Research believes Alibaba’s revamp does not mean the crackdown on the platform economy has ended. He speculates that Alibaba's business split is aimed at seeking more lenient regulations, rather than having one large entity that may be subject to more stringent oversight.