Alibaba considers yielding control of some businesses in overhaul

Alibaba announced its largest restructuring in its history, which will see the group split into six business units. PHOTO: AFP

SHANGHAI/HONG KONG - Alibaba Group said on Thursday it will look to monetise non-core assets and consider giving up control of some businesses, as the Chinese technology conglomerate reinvents itself after a regulatory crackdown that wiped 70 per cent off its shares.

Group chief executive officer Daniel Zhang said the company’s break-up into separate businesses will allow its units to become more agile and eventually launch their own initial public offerings (IPOs).

Alibaba on Tuesday 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,” Mr Zhang told investors on a conference call on Thursday.

On the same call, Alibaba chief financial officer Toby Xu said the group would “continue to evaluate the strategic importance of these companies” and “decide whether or not to continue to retain control”.

Alibaba’s indication that it could divest assets and sell control of business units after they go public comes more than two years after Beijing launched the 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 short term, Mr Zhang added.

The group’s Hong Kong-listed shares opened 2.7 per cent higher after the investor call following a 12 per cent jump on Wednesday, but gains had narrowed to 0.9 per cent by midday.

Matter of survival

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

When asked about the timeline for the listings, Mr Xu said that as a result of the restructuring, each business unit can pursue independent fund raisings and IPOs when it is ready.

The changes will come into effect immediately.

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

But Alibaba will decide whether the group wants to keep strategic control of each unit after it goes public.

Meanwhile, the group is also planning to continue to monetise non-strategic assets in its portfolio to optimise its capital structure, said Mr Xu.

Alibaba’s major rival Tencent has in the past year divested a number of portfolio companies, including selling a US$3 billion (S$4 billion) stake in Sea, and transferring US$16.4 billion worth of shares and US$20 billion worth of Meituan shares to shareholders.

For its part, Alibaba has made or announced 18 divestments since 2020, Refinitiv data showed.

Alibaba’s reorganisation will not change its share repurchase plan, Mr Xu added on the call.

Alibaba launched a US$6 billion share buyback programme in 2019, which had expanded to US$40 billion by late 2022.

Mr Qi Wang, CEO of China-focused 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,” he said.

“Companies including Tencent, Alibaba, JD, Didi and ByteDance have been making bottom-up changes to mitigate the regulatory risk, cost-cutting (layoffs), improving operating efficiency, divesting non-core businesses.”

Alibaba, once valued at more than US$800 billion, has seen its market valuation decline to US$260 billion since Beijing started the crackdown on its sprawling tech sector in late 2020.

Some analysts say Alibaba is currently undervalued as a standalone conglomerate, and that a break-up would allow investors to value each business division independently.

The restructuring could also better protect Alibaba shareholders from regulatory pressures, as penalties levied on one division in theory would not affect the operations of another.

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

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