SHANGHAI/HONG KONG, March 30 (Reuters) – Alibaba Group (9988.HK) said on Thursday it would look to monetize non-core assets and consider giving up control of some companies, as the Chinese tech conglomerate reinvents itself after a regulatory crackdown. Which eliminated 70% of its shares.
Group CEO Daniel Chang said splitting the company into separate businesses would allow its units to become more flexible and eventually launch its initial public offering (IPO).
His comments come two days after Alibaba announced the largest restructuring in the company’s history, which will see it shift to a holding company structure with six business units, each with its own boards of directors and executives.
“Alibaba will be more in the nature of an asset and capital operator than a business operator, in terms of business group companies,” Zhang told investors on a conference call Thursday.
On the same call, Alibaba’s chief financial officer, Toby Xu, said the group would “continue to assess the strategic importance of these companies” and “decide whether or not to continue to retain control.”
Alibaba’s suggestion that it could divest assets and sell control of business units after they go public comes more than two years after Beijing launched a sweeping crackdown on the tech giants, targeting monopolistic practices, data security protection and other issues.
Zhang added that while the new business units will have their own CEOs and boards, Alibaba will retain seats on those boards in the short term.
The group’s Hong Kong-listed shares opened up 2.7% after calling investors following the 12% jump on Wednesday, but the gains narrowed to 0.9% by midday.
A matter of survival
Zhang said that Alibaba started to lay the groundwork for restructuring a few years ago.
As a result of the restructuring, Xu said, when asked about the listing schedule, that each business unit can pursue independent fundraising and IPOs when they are ready. Changes will take effect immediately.
“We believe the market is the litmus test, so every company can seek financing and go public when they are ready,” Xu said.
However, Alibaba will decide whether the group wants to retain strategic control of each unit after it goes public.
Meanwhile, the group also plans to continue monetizing non-strategic assets in its portfolio to improve the capital structure, Xu said.
Alibaba’s main rival Tencent last year divested a number of portfolio companies, including selling a $3 billion stake in SEA (SE.N), and transferring $16.4 billion worth of shares in JD.COM (9618.HK). and $20 billion of Meituan (3690.HK) shares to shareholders.
Refinitiv data showed that Alibaba, for its part, has conducted or announced 18 liquidations since 2020.
Xu added on the call that Alibaba’s reorganization will not change its share buyback plan. Alibaba launched a $6 billion share buyback program in 2019, which has expanded to $40 billion by late 2022.
The sector’s strategic move to reorganize is about survival, said Qi Wang, CEO of MegaTrust Investment, a China-focused asset management firm.
“These Internet companies will not just sit there and let regulation undermine their growth and profits,” Wang said. “Companies including Tencent, Alibaba, JD, Didi, and ByteDance have made bottom-up changes to mitigate regulatory risks, cut costs (layoffs), improve operating efficiency, and weed out non-core businesses.”
Alibaba, once valued at more than $800 billion, has seen its market capitalization drop to $260 billion since Beijing began its crackdown on the sprawling tech sector in late 2020.
Some analysts say Alibaba is currently undervalued as a stand-alone conglomerate, and that a collapse would allow investors to independently value each business division.
The restructuring could also better protect Alibaba shareholders from regulatory pressure, as sanctions imposed on one division would in theory not affect the operations of another.
Ratings agencies S&P and Moody’s said this week that Alibaba’s restructuring was a credit positive.
However, S&P said it is not yet known how existing resources will be divided or how the group will support companies with significant cash needs.
Additional reporting by Josh Horowitz in Shanghai, Julie Zhou and Ken Wu in Hong Kong; Writing by Sumit Chatterjee. Editing by Sam Holmes
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