Alibaba Group (9988.HK), the world’s top ecommerce company, dumped plans to list its logistics subsidiary Cainiao Smart Logistics Network on Tuesday and said it would instead buy up to $3.75 billion in the firm from shareholders. The move, which comes just six months after the ecommerce giant unveiled a major restructuring plan, is designed to give each of its businesses the flexibility to seek capital increases or market debuts.
Founder Jack Ma’s Alibaba will adopt a holding company management model and separate into business units covering retail, cloud computing, local services, food delivery in China, logistics, digital media, and entertainment. Each will have its own chief executive and board. Most of the businesses will likely explore capital increases or market debuts to fund growth.
Cainiao, which accounted for around 30% of Alibaba’s total revenue in the three months to June, operates a global logistics network that underpins its sprawling ecommerce empire. The unit reported revenue of $1.2 billion in the same period, up 34% from a year earlier.
The decision to withdraw the IPO is likely to give the logistics business more flexibility. However, raising money in a subdued global stock market environment will be difficult for any of the new companies. Several of the Alibaba businesses being spun off are loss-making and burning cash. To attract investors, they will need to generate profits and cash flow.
Alibaba will retain stakes in the businesses being spun off, but it may choose to sell off some of those shares over time. Some analysts – including those at Bloomberg Intelligence – believe the firm will eventually become more of an asset and capital operator of its various business units.
It will be up to the individual businesses to prove that they are worthy of a listing and that their share prices can rise significantly above their current valuations to attract investors. They will also need to demonstrate their ability to deliver sustainable and profitable growth in the face of a sluggish market environment.
The first of the Alibaba spin-offs to go public—a cloud unit—is due to be listed before May 2024. That should provide a much-needed boost for Hong Kong’s IPO market, which has been struggling to recover from a sluggish start to the year due to sluggish Chinese markets and strict Covid lockdowns on overseas deals.
As of the end of March, Alibaba had around $81.6 billion in cash, far outstripping debt and giving it a favorable debt-to-equity ratio. It can use this firepower as it executes its massive restructuring plan and separates into six different businesses.
