Cainiao Smart Logistics Network has filed for a Hong Kong IPO, becoming the first spin-off from Alibaba Group Holding since the Chinese tech giant split itself into six units with a plan to list most of them.
The logistics company filed the planned float on Tuesday night with Citigroup, Citic Securities and JP Morgan as sponsors. It is planning to raise at least US$1bn in a deal which could value it at around US$15bn–$20bn, people close to the deal said earlier.
Cainiao aims to start meeting investors in October, said the people.
It is keen to list as soon as possible but still needs approvals from the China Securities Regulatory Commission and the Hong Kong stock exchange. Given the CSRC has been slow in approving overseas listings, the IPO is not expected to arrive until early next year, the people said.
Bankers have said Cainiao is the most appealing asset among the units that Alibaba is planning to list. A successful listing will set a positive backdrop for the other spin-offs and give a boost to the sluggish Hong Kong IPO market, they said.
“Since Cainiao filed, the sponsors have received a lot of enquiries from investors and they are keen to meet the management,” said a person close to the company.
The Alibaba unit may have drawn investor attention back to Hong Kong's IPO market but sustaining that focus will be difficult as many investors are staying away from China because of the economic and regulatory risks, according to bankers.
Deloitte China's Capital Market Services Group said on Monday it counted 44 IPOs raising HK$24.7bn (US$3.2bn) in Hong Kong in the first three quarters of 2023, versus 51 IPOs raising HK$64bn over the same period last year. That represents a 61% plunge in deal value year on year.
Cainiao is now closely watching the planned Hong Kong listings of two rivals in the logistics industry – J&T Global Express via a US$500m deal and the US$2bn–$3bn offering of Shenzhen-listed SF Holding.
J&T won listing approval on Thursday from the Stock Exchange of Hong Kong for an October deal, while SF filed a listing application in August.
Cainiao is selling a growth story to investors. In the first quarter ended June 30, it posted revenue of Rmb23bn (US$3.15bn), up 33.6% from a year earlier, while revenue growth for 2022 and 2023 was 26.8% and 16.4%, respectively.
Its first-quarter profit was Rmb288m, compared to a loss of Rmb370m a year earlier. For the full year ended March 31, it posted a loss of Rmb2.8bn.
Arun George, an analyst at Global Equity Research who publishes on research portal Smartkarma, said in a report that a US$20bn valuation for the company is justifiable.
“Cainiao's revenue growth, while on a declining trend, remains in double digits. Encouragingly, narrowing losses set a path to profitability,” he said.
According to Cainiao’s filing, around 30% of its revenue came from Alibaba over the past three years.
Alibaba, which holds a 69.5% stake in the company, will keep more than 50% after the IPO.
Chinese billionaire Shen Guojun owns 13.9% of Cainiao, while other investors including Singaporean sovereign wealth fund GIC, Temasek Holdings and Malaysia's sovereign wealth fund Khazanah Nasional own the remaining 16.6%.
Founded in 2013, Cainiao has a worldwide network encompassing two e-hubs, over 1,100 warehouses and more than 380 sorting centres.
Shares in Alibaba fell 1.5% to US$85.91 in the US on Tuesday after the IPO filing of Cainiao, while its US dollar bonds tightened by 1bp–6bp on Tuesday. Its Hong Kong shares closed up 0.7% at HK$84.50 on Wednesday.
"We view the potential IPO of Cainiao as credit positive for Alibaba as it reduces the risk of cash burn," said research firm CreditSights.
Other units lined up
Apart from Cainiao, bankers have also promoted the planned Hong Kong IPO of Alibaba's Freshippo (Hema) to investors in the past few months, gauging their interest in the grocery business.
Freshippo is targeting a valuation of US$4bn–$5bn but investor feedback has been tepid as competition in the industry is intense and the company is loss-making, said people with knowledge of the matter. The deal, which is being arranged by CICC and Morgan Stanley, is now expected to be next year’s business.
Alibaba’s cloud computing unit is also facing hurdles to its Hong Kong listing after ex-group CEO Daniel Zhang stepped down at the unit in a surprising move earlier this month.
Alibaba said in May it planned to spin off Alibaba Cloud Intelligence Group via a stock dividend distribution to shareholders in the next 12 months. Before the spin-off, it will bring in external strategic investors through private financings.
The Chinese tech giant is also exploring raising external capital for Alibaba International Digital Commerce Group to support its development and growth.
Meanwhile, Cainiao plans to spin off some logistics properties through a China infrastructure REIT (C-REIT) listing on the Shanghai Stock Exchange or another venue within three years, according to its IPO filing.
The portfolio comprises 10 logistics properties in Chongqing, Shaoxing, Jiaxing and Chengdu with a total area of 901,044 square metres. The valuation of these assets is about 5.8% of Cainiao’s total assets of Rmb71.8bn as of March 31, or Rmb4.16bn.
According to a report by Deloitte, there were 28 C-REITs with a total market value of nearly Rmb100bn as of July, after two years of rapid development. The asset types include industrial parks, highways, rental housing, warehousing logistics, clean energy and ecological and environmental protection facilities.
REITs with assets in industry parks, warehousing, logistics and affordable rental housing offered yields of around 4%–5% in 2022.
(Additional reporting by Karen Tian)