Alibaba, JD.com awaken China tech’s long-dormant IPO machine

Hong Kong - Alibaba Group Holding and JD.com have begun preparations for a trio of the year’s biggest Chinese debuts, heralding a wave of initial public offerings (IPOs) that promise to breathe new life into the struggling technology industry and Hong Kong’s stock market.

Cainiao Network Technology, Alibaba’s logistics arm, kicked off discussions with banks for an IPO. On Thursday, two JD subsidiaries filed for first-time share sales in the city. Those three listings could raise about US$5 billion (S$6.6 billion) between them, people familiar with the matter said.

The moves ignited hopes that Beijing – keen to resuscitate the world’s No. 2 economy – is unfettering the private sector, allowing its biggest names to again pursue business and fund raising.

This week, Alibaba got the ball rolling by unveiling a six-way split that could usher several businesses, including Cainiao, onto public markets. That shake-up accomplishes Beijing’s broader aim of carving up tech titans and diminishing their influence over swaths of the economy – while unlocking potentially billions of dollars in value.

The revival of the Chinese tech IPO train ends a year-long drought that set in after regulators pulled the plug on Ant Group’s record IPO. Once among the world’s most lucrative investment banking plays, the business dried up around 2021 when Beijing launched a blistering attack on Internet sectors from online commerce to gaming, and tightened requirements for overseas listings.

A number of Chinese tech names have lodged or resubmitted their Hong Kong listing applications in just the past week, including logistics giant Lalatech Holdings, social media app Soulgate and fitness app Keep.

But there are bigger candidates: TikTok-owner ByteDance, ride-hailing giant Didi Global and social media player Xiaohongshu are potentially waiting in the wings.

Alibaba’s announcement dovetailed with the

return of its billionaire co-founder Jack Ma to China,

as well as a series of official proclamations of support for the private sector. But many entrepreneurs and tech executives, traumatised by almost two years of relentless scrutiny, remain wary of Beijing’s intentions, given the Xi Jinping administration’s distrust of powerful private firms. And there is no guarantee that splitting up and spinning off actually propels businesses over the long haul.

But Alibaba and JD are adding fuel to a trend that has emerged in 2023. Chinese companies have beaten their peers in the United States and Europe early in the year on equity financing, buoyed by hopes about China’s post-Covid-19 reopening while the rest of the world grapples with a potential recession.

“(It) indicates Beijing support for more buoyant capital market activities within China’s tech sector ahead,” said Bloomberg Intelligence analyst Catherine Lim. “This should help lift overall market sentiment and anticipation for the listing of other mammoth companies within the sector.”

Tapping the IPO market is key for Chinese firms to bankroll expansion and expand their investor base. A wave of listings will also benefit Hong Kong, long the prime venue for Chinese debuts until Beijing clamped down.

The city has seen only about US$852 million raised through IPOs so far in 2023, a fraction of the US$4.1 billion raised in the same period in 2022.

Cainiao, which means amateur or rookie in Chinese, is on track to hit the market first in part because it has had a long track record as a standalone operation that supports other parts of the Alibaba empire. While incurring losses, the unit has consistently racked up double-digit revenue growth and is one of the company’s most recognisable brands, a nationwide logistics giant that helps ship upwards of a billion packages during the company’s signature Singles’ Day shopping festival.

For JD, it had in past years spun off divisions including JD Health International, which raised almost US$4 billion in a 2020 Hong Kong IPO. JD Technology, its fintech arm, may be looking to list in the Asian financial hub.

There has been speculation also about Tencent Holdings potentially taking a page out of Alibaba’s book.

It runs China’s biggest mobile wallet and payments platform, alongside four main businesses with spin-off potential: gaming, cloud computing, WeChat and online content such as video. The company has already listed music and online literature. BLOOMBERG