The CEO of Chinese e-commerce and financial giant Alibaba said, that the company is moving toward giving up control of some of its business units in a transition toward becoming a capital operator to optimize the value of its sprawling businesses.

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  Edited  by |ANNA sam

Economy section -  CJ journalist

 HONG KONG - March,30,2023  

 

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    Alibaba plans to spin off some of its sprawling e-commerce and finance empires as independent businesses to make them more flexible and maximize their value, its top executives said Thursday, as the company emerges from regulatory crackdowns that rattled Chinese tech industries.

Alibaba CEO Daniel Zhang outlined details of a plan announced earlier this week to split Alibaba into six main groups as a prelude toward stock listings of some of its companies. The restructuring marks a new stage in Alibaba’s growth after a series of setbacks as regulators tightened oversight of the industry.

Alibaba, whose headquarters is in the eastern city of Hangzhou, will be “in the nature of a holding company that is the controlling shareholder of the business group companies,” Zhang said in a conference call.

Alibaba’s CFO, Toby Xu, said the company would continue to evaluate the strategic importance of group companies after they go public and decide whether or not to retain control. He declined to say when they might go public.

“We believe the market is the best litmus test, so each business group company can pursue independent fundraising and IPOs as and when they are ready,” Xu said.

 firm’s Hong Kong-listed stock was up 0.9% by midday Thursday.

The plan and the recent return of Alibaba founder Jack Ma to China after months abroad appear to mark a turnaround after several hard years. Chinese regulators singled out Alibaba for scrutiny in a crackdown on technology and internet companies, putting the brakes on a planned initial public offering in 2020 of Alibaba’s financial affiliate Ant Group.

Ant had been set to raise $34.5 billion in what would have been the world’s largest share offering at the time. Alibaba was later investigated and fined $2.8 billion for breaching antitrust rules as Chinese authorities cracked down on the once-freewheeling technology industry.

Zhang said he expected the shake-up to be challenging but would also “allow all of our businesses to become more agile, enhance their decision making and enable faster responses to market changes.”

Among other things, the restructuring plan might allay past antitrust concerns, since as Zhang explained, each Alibaba business unit would be empowered to make its own decisions and raise capital independently.

“The looser connections between the business units is in line with the regulatory stance of encouraging competition,” said an analyst’s note from Moody’s Investor Service.

Alibaba’s restructuring the first such major overhaul in the Chinese technology industry also could serve as an example for similar companies such as the online games company Tencent to follow suit. Tencent’s shares rallied after Alibaba’s announcement on Monday.

“We think that Alibaba’s new organizational structure could be used by Chinese regulators as a template for other Chinese Big Tech firms,” said a report by CreditSights.

Francis Lun, CEO of Geo Securities in Hong Kong, said that in the short term, Alibaba’s move will likely allow the group to raise more capital. But it might be more difficult for the company to stay competitive in mergers and acquisitions.

“When you split into six business units, you’d just be a lightweight competing against the heavyweights such as Apple, Amazon, and Alphabet,” Lun said.

He pointed out that only Alibaba’s e-commerce and cloud units were profitable and that in the long term, the other units may not succeed.

 

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