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Wednesday, May 22, 2024

Alibaba’s Logistics Arm Eyes Up to $2 Billion Hong Kong IPO

The logistics arm of China’s e-commerce giant Alibaba has started preparations to become the first of six spin-off units to go public, sources told Caixin. According to the sources, the unit, dubbed Cainiao Network Technology, aims to raise up to $2 billion via a Hong Kong IPO, likely early next year. They asked not to be identified as the deliberations were private.

Cainiao, whose revenue in the nine months to December grew 22% to 42 billion yuan, is expected to be valued at more than $20 billion after the IPO. The business, founded in 2013 with partners including department store operator Intime Group and conglomerate Fosun Group, provides software that connects warehouses, express delivery firms, and carriers. It also operates air cargo centers in more than 200 cities and regions.

Its potential market debut is a positive sign for a capital markets revival in Hong Kong. It has struggled to lure listing deals amid stricter scrutiny of Chinese companies operating in the United States and growing concerns about data security in mainland China. In the first quarter, the bourse saw only 18 new listings, raising HK$6.7 billion ($0.88 billion), down 55% from a year earlier.

In contrast, Shanghai-listed Alibaba has been one of the world’s top-performing stocks this year, boosted by its diversified businesses and firm performance in consumer finance and fintech. Its stock has gained nearly 20% this year. Its e-commerce and finance platforms have performed better than many other global tech giants, and its investments in artificial intelligence are paying off.

But investors are still wary of Alibaba’s decision to break up into six independent units, despite CEO Jack Ma saying the restructuring would allow the company to be “more agile and shorten the decision-making links.” The move is also being seen as an attempt to defuse criticism of Alibaba’s empire by local regulators in the wake of a clampdown on internet spheres since late 2020.

The breakup could devolve control of Alibaba’s business to the units, which will have their management teams and greater autonomy in setting business strategy. Five units will also be allowed to explore capital raisings or market debuts, bolstering their prospects of quickly returning to public markets. The split-up plan is expected to boost the profitability of each unit. However, the new entities are unlikely to make a dent in Alibaba’s huge debt pile. The company has over $1 trillion in liabilities, a figure that eclipses the size of its market capitalization. The company is also facing pressure from Beijing to weed out unprofitable investments and limit its economic influence. In addition, its e-commerce platforms have been criticized for promoting fake products and overcharging customers. The company has vowed to tackle these problems.

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