Chinese e-commerce giant Alibaba outlines its future strategy

HONG KONG — The CEO of Chinese e-commerce and finance giant Alibaba said on Thursday that the company is moving to relinquish control of some of its business units in order to transition to becoming an equity operator to optimize the value of its sprawling businesses.

Daniel Zhang outlined the details of the plan announced earlier this week to split Alibaba into six major groups as a prelude to the IPO of some companies. The restructuring marks a new stage in Alibaba’s growth after regulators cracked down on Alibaba and other technology companies.

Alibaba, which is headquartered in the eastern city of Hangzhou, “will be a holding company that is the controlling shareholder of the companies in the business group,” Zhang said in a conference call.

Alibaba CFO Toby Xu said the company will continue to evaluate the strategic importance of group companies after they go public and decide whether to retain control or not. He declined to say when they might be released.

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“We believe the market is the best litmus test, so companies in each business group can pursue independent fundraising and IPO as and when they are ready,” Xu said.

Alibaba shares in Hong Kong and New York have risen nearly 15% since the restructuring was announced on Tuesday. The company’s shares listed on the Hong Kong stock exchange gained 0.9% by midday on Thursday.

The plan, along with Alibaba founder Jack Ma’s recent return to China after months abroad, appears to be a turnaround after several tough years. Chinese regulators have singled out Alibaba for investigation in a crackdown on technology and internet companies, putting the brakes on an initial public offering of Alibaba’s financial subsidiary Ant Group, which was planned for 2020.

Ma has kept a low profile with few public appearances since November 2020, when he publicly criticized China’s regulators and financial systems in a speech in Shanghai.

Ant would have raised $34.5 billion, which would have been the world’s largest stock offering at the time. Alibaba was later investigated and fined $2.8 billion for antitrust violations as Chinese authorities cracked down on the once freewheeling tech industry.

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“The looser ties between businesses are consistent with a pro-competitive regulatory stance,” Moody’s Investor Service analysts said in a note.

Among other things, the restructuring plan could allay such antitrust concerns, as Zhang explained that each of Alibaba’s businesses would make independent decisions and raise capital. He said that allowing business units to operate independently should also promote innovation and growth after years of severe restrictions related to the COVID-19 pandemic that have battered China’s economy.

Alibaba’s restructuring, the first of its kind in China’s tech industry, could serve as an example for similar companies such as online gaming giant Tencent to follow suit. Shares of Tencent gained after Alibaba’s announcement on Monday.

“We believe Alibaba’s new organizational structure could be used by Chinese regulators as a model for other Chinese high-tech companies,” CreditSights said in the report.