SHANGHAI/HONG KONG, March 30 (Reuters) – Alibaba Group ( 9988.HK ) said on Thursday it would look at monetizing non-core assets and consider giving up control of some businesses. , as the Chinese tech conglomerate reinvents itself after a regulatory explosion. which eliminates 70% of its parts.
Group CEO Daniel Zhang said the company’s breakup into separate businesses would allow its units to be more agile and eventually launch their own initial public offerings (IPOs).
His comments come two days after Alibaba announced the biggest shakeup in the company’s history, which will see it transform into a holding company structure with six business units, each with its own which are boards and CEOs.
“Alibaba will be more in the nature of an asset and capital operator than a business operator, relative to business group companies,” Zhang told investors in a conference call on Thursday.
In the same call, Alibaba CFO Toby Xu said the group would “continue to evaluate the strategic importance of these companies” and “decide whether or not to continue withholding”.
Alibaba’s indication that it may divest from assets and sell control of business units after going public comes more than two years after Beijing launched a massive crackdown on its tech giant. , targeting monopolistic practices, data security protection and other issues.
While the new business units will have their own CEOs and boards, Alibaba will retain board seats in the short term, Zhang added.
Shares in the Hong Kong-listed group opened 2.7% higher after the investor call and followed a 12% jump on Wednesday. Gains narrowed to 2.0% in afternoon trade.
ESSENTIAL TO LIFE
Alibaba started laying the groundwork for the turnaround a few years ago, Zhang said.
As a result of the restructuring, each business unit can pursue independent fundraising and IPOs when they are ready, Xu said, when asked about the timeline for the listings. The changes will be effective immediately.
“We believe the market is the litmus test for each company to proceed with financing and IPO when they are ready,” Xu said.
Alibaba, however, 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 optimize its capital structure, Xu said.
Alibaba’s major rival Tencent last year divested from a number of portfolio companies including selling a $3 billion stake in SEA ( SE.N ), transferring $16.4 billion worth of JD. COM (9618.HK) shares and $20 billion worth of Meituan (3690.HK) shares in shareholders.
For its part, Alibaba has made or announced 18 divestments since 2020, Refinitiv data shows.
Alibaba’s reorganization will not change its share buyback plan, Xu added on the call. Alibaba implemented a $6 billion share buyback program in 2018, expanding to $40 billion by late 2022.
Qi Wang, CEO of China-focused asset manager MegaTrust Investment, said that the sector’s strategic move to reorganize is about survival.
“These internet companies can’t just sit there and let regulation take away their growth and profits,” Wang said. “Companies including Tencent, Alibaba, JD, Didi and ByteDance are making bottom-up changes to mitigate regulatory risk, cut costs (removal), improve operating efficiency, remove non- core business.”
Alibaba, once worth more than $800 billion, has seen its market value drop to $260 billion since Beijing began a crackdown on the growing technology sector in the late 2020s.
Some analysts say Alibaba is currently undervalued as a standalone conglomerate and that a breakup would allow investors to value each business division independently.
The change could also better protect Alibaba shareholders from regulatory pressures, since sanctions imposed on one division would theoretically not affect the operation of another.
Ratings agencies S&P and Moody’s said this week that Alibaba’s turnaround is credit positive.
However, S&P said it did not yet know how to allocate existing resources or how the group would support businesses with significant cash needs.
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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