Alibaba Group Holding has scrapped the planned Hong Kong IPO of Cainiao Smart Logistics Network, which could have raised around US$1bn from one of the highly anticipated listings in the city this year.
According to an announcement from the Chinese e-commerce giant on Tuesday, Cainiao has withdrawn its listing application from the Stock Exchange of Hong Kong.
The decision was made mainly due to difficult market conditions.
“Given Cainiao’s strategic role and future plans within Alibaba Group, and given challenging market conditions, it has become clear to us that taking Cainiao public now or in the foreseeable future would not be consistent with our group strategies, nor with any achievable valuation in an IPO reflecting what we believe to be the strategic value of Cainiao at this point,” said Alibaba chairman Joseph Tsai in a conference call with analysts.
With the IPO not going ahead, Alibaba, which owns about 63.7% of Cainiao, is planning to spend up to US$3.75bn to buy back shares from Cainiao’s minority shareholders, including employees, at US$0.62 each.
The offer values Cainiao at US$10.3bn, which Tsai said is what Alibaba and its advisers believe to be the current fair value of the company.
In other words, Hong Kong’s IPO market is unlikely to offer Cainiao that valuation if it goes public now.
When Cainiao filed for a Hong Kong IPO in September, people with knowledge of the matter said the logistics company was planning to raise at least US$1bn from the float at a US$15bn–$20bn valuation.
During the non-deal roadshows in the past few months, there was pushback from investors on the valuation given the overall weakness in Chinese stocks, according to people familiar with the situation.
“We haven’t gone to the stage yet to discuss valuation in depth, but initial feedback has shown some investors agree around US$10bn is a reasonable valuation,” said one of the people. “However, if you want to do an at least US$1bn deal, you would need more than a few investors to agree on that valuation.”
Citigroup, Citic Securities and JP Morgan were sponsors.
Struggling market
Cainiao’s IPO withdrawal has dealt a blow to the Hong Kong IPO market, which saw its fundraising size tumble 56% to US$5.9bn in 2023, the lowest in 20 years.
“Frankly, I’m not surprised to see Alibaba give up Cainiao’s IPO. The market is still not there for an IPO that would want support from international institutional investors,” said an ECM banker.
“I just feel sad for Hong Kong now that a high-profile IPO has gone. Some of us had hoped the Cainiao IPO would bring some excitement to the lacklustre market,” said the banker.
Alibaba’s Tsai summed up the current market conditions when asked by analysts whether the group will continue to pursue other listings.
“I think the overall environment for doing capital markets transaction in order to unlock value for shareholders is just not there in this part of the world. Markets are pretty depressed and there's also lack of liquidity,” said Tsai.
“It doesn't make sense for us to continue to grind into these capital market deals if it doesn't achieve the purpose of unlocking value for shareholders,” he said.
Change of plan
Alibaba in March last year announced plans to split itself into six units and said that most of them could raise funds or seek a listing.
However, the company in November scrapped a plan to spin off its cloud computing unit as US restrictions on the export of advanced computing chips have created business uncertainties. It also put on hold the Hong Kong IPO of grocery business Freshippo (Hema) because of challenging market conditions.
While the business split was seen by some as a move to appease regulators, rather than having one large entity with an outsized market share that may be subject to more stringent oversight, Alibaba’s Tsai denied regulation played any role in the company’s decision to withdraw the Cainiao IPO.
“This is purely an internal strategic decision,” he said.
Alibaba said it plans to align part of Cainiao’s business to better realise strategic synergies with Taobao and Tmall Group and Alibaba International Digital Commerce Group, as well as support Cainiao to execute a long-term strategic expansion of its global logistics network.
Shares in US and Hong Kong-listed Alibaba closed unchanged at US$71.48 in the US on Tuesday but fell 2.1% to HK$68.80 on Wednesday in Hong Kong.