Alibaba to divest noncore assets, may yield control

• Group restructuring will enable its divisions to become more agile and launch their own IPOs

Alibaba said on Thursday it will look to monetise noncore assets and consider giving up control of some businesses, as the Chinese tech conglomerate reinvents itself after a regulatory crackdown that wiped 70% off its share price.

Group CEO Daniel Zhang said that breaking the company into separate businesses will allow its units to become more agile and eventually launch their own initial public offerings (IPOs).

His comments come two days after Alibaba announced the largest restructuring in the company’s history, which will see it change into a holding company structure with six business units, each with its own board and CEO.

“Alibaba will be more of the nature of an asset and capital operator than a business operator, in relation to the business group companies,” Zhang told investors on a conference call on Thursday.

Alibaba CFO Toby Xu said the group would “continue to evaluate the strategic importance of these companies” and “decide whether to continue to retain control”.

Alibaba’s indication that it could divest from assets and sell control of business units after they go public comes more than two years after Beijing launched a sweeping crackdown on its tech giants, targeting monopolistic practices, data security protection and other issues.

While the new business units will have their own CEOs and boards, Alibaba will retain seats on those boards in the shortterm, said Zhang.

The group’s Hong Kong-listed shares opened 2.7% higher after the investor call and after a 12% jump on Wednesday. Gains narrowed to 2.0% in afternoon trade.

MATTER OF SURVIVAL

Alibaba began laying the groundwork for the restructuring a few years ago, said Zhang.

As a result of the restructuring, each business unit can pursue independent fundraisings and IPOs when they’re ready, Xu said, when asked about the listings timeline. The changes will be immediate.

WE BELIEVE THE MARKET IS THE LITMUS TEST, SO EACH COMPANY CAN PURSUE FINANCING AND IPO WHEN THEY ARE READY

“We believe the market is the litmus test, so each company can pursue financing and IPO as and when they are ready,” said Xu.

Alibaba will decide whether to keep strategic control of each unit after they go public. The group is also planning to continue to monetise nonstrategic assets in its portfolio to optimise its capital structure, said Xu.

Alibaba’s major rival, Tencent, divested in the past year from a number of portfolio companies including selling a $3bn stake in SEA, and transferring $16.4bn worth of JD.com shares and $20bn worth of Meituan shares to shareholders. For its part, Alibaba made or announced 18 divestments since 2020, Refinitiv data shows.

Alibaba will not change its share repurchase plan, Xu said. Alibaba had a $6bn share buyback programme in 2018, which rose to $40bn by late 2022.

Qi Wang, CEO of Chinafocused asset manager MegaTrust Investment, said the sector’s strategic move to reorganise was about survival. “These internet firms are not going to just sit there and let regulation erode away their growth and profits,” Wang said. Companies including Tencent, Alibaba, JD, Didi and ByteDance have been making changes to mitigate regulatory risk and cost cuts (layoffs), improve operating efficiency and shed noncore businesses

The market price of Alibaba, once valued at more than $800bn, fell to $260bn since Beijing began to crack down on its sprawling tech sector in late 2020. Some analysts say Alibaba is undervalued as a conglomerate and that a break-up will allow investors to value each business division independently. The restructuring could better protect Alibaba shareholders from regulatory pressure, as penalties levied on one division would not in theory affect operations of another.

Ratings agencies S&P and Moody’s said this week Alibaba’s restructuring was credit positive. But S&P said it was not yet known how existing resources would be divvied up or how the group would support businesses with significant cash needs.