SHANGHAI/HONG KONG, March 30 (Portal) – Alibaba Group (9988.HK) said on Thursday it will seek to monetize non-core assets and is considering giving up control of some companies as the Chinese tech conglomerate relocated after a regulatory crackdown reinvents that wiped out 70% of its shares.
Group CEO Daniel Zhang said splitting the company into separate businesses will allow its units to become more agile and eventually become self-listed.
His comments come two days after Alibaba announced its biggest restructuring in the company’s history, which will result in a transformation into a holding company structure with six business units, each with their own boards and CEOs.
“Alibaba will be more of an asset and capital operator than a business operator in terms of the group’s companies,” Zhang told investors in a conference call on Thursday.
On the same conference call, Alibaba CFO Toby Xu said the group will “continue to assess the strategic importance of these companies” and “decide whether or not to retain control.”
Alibaba’s suggestion that it could divest assets and sell control of businesses after they go public comes more than two years after Beijing launched a sweeping crackdown on its tech giants, alleging monopolistic practices, privacy protections and others problems.
While the new businesses will have their own CEOs and boards, Alibaba will retain seats on those boards in the short term, Zhang added.
The group’s Hong Kong-listed shares opened 2.7% higher following the investor call and were still up 2% by 0147 GMT.
MATTER OF SURVIVAL
Alibaba started laying the groundwork for the restructuring several years ago, Zhang told investors during a conference call.
As a result of the restructuring, each business unit can conduct independent fundraising and IPOs when they are ready, Xu said when asked about the listing schedule. The changes take effect immediately.
“We believe the market is the litmus test for any company to pursue funding and IPO when ready,” Xu said.
However, Alibaba will decide whether the group wants to retain strategic control of each entity after it goes public, Xu said.
Meanwhile, the group also plans to continue monetizing non-strategic assets in its portfolio to optimize its capital structure, Xu said.
Alibaba’s main competitor Tencent divested itself of a number of portfolio companies over the past year, including the sale of a $3 billion stake in SEA (SE.N), the transfer of $16.4 billion of JD.COM’s stock (9618.HK) and $20 billion shares Meituan (3690.HK) shares to shareholders.
Alibaba’s restructuring will not change its share buyback plan, Xu added on the conference call.
Qi Wang, CEO of China-focused wealth manager MegaTrust Investment, said the sector’s strategic move to reorganize is about survival.
“These internet companies are not going to just sit and allow regulation to sap their growth and profits,” Wang said. “Companies like Tencent, Alibaba, JD, Didi, and ByteDance have made bottom-up changes to mitigate regulatory risk, cut costs (layoffs), improve operational efficiencies, and divest non-core businesses.”
Alibaba, once valued at more than $800 billion, has seen its market valuation fall to $260 billion since Beijing began a crackdown on its sprawling tech sector in late 2020.
Some analysts say Alibaba is currently undervalued as a standalone conglomerate, and a breakup would allow investors to independently assess each division.
The reorganization could also better protect Alibaba shareholders from regulatory pressures, since penalties imposed on one division would theoretically not affect the operations of another.
Reporting by Josh Horwitz in Shanghai, Julie Zhu and Kane Wu in Hong Kong; writing by Sumeet Chatterjee; Editing by Sam Holmes
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