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March 30, 2023

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Alibaba breakup plan boosts market

ALIBABA Group’s plans for a major revamp have propeled its shares higher and boosting investor confidence in prospects for Chinese tech firms.

The Jack Ma-founded conglomerate said on Tuesday it was planning to split into six units and explore fundraisings or listings for most of them, marking the biggest restructuring in its 24-year history.

Its Hong Kong-listed shares closed up 12 percent, tracking a rally in its US-listed shares overnight, and giving the group a market value of about US$255 billion. Those gains led the Hang Seng Index and other markets in the region higher.

The index heavyweight lifted the Hang Seng Tech Index by 2.5 percent, while also sending the Hang Seng benchmark up 2.1 percent.

Alibaba said it would split into six units — Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group and Digital Media and Entertainment Group.

The group has been planning to spin off individual business units for a long time, according to two sources familiar with the company’s thinking.

“There was a consensus within and outside Alibaba that the stock was trading at a major discount to the inherent value of the businesses,” said one of the people, adding that the company had become “too bloated.”

The person said there would be five initial public offerings from the units, while Taobao and Tmall, Alibaba’s core revenue drivers, would remain with the current listed entity.

Hong Kong is the most likely venue for these IPOs, said the person, and a separate source familiar with Chinese tech companies’ capital markets transactions.

The sources declined to be identified as the information was not public. Alibaba did not respond to a request for comment.

Alibaba would re-organise into a holding company structure. Daniel Zhang will retain his position as group CEO and will also lead the cloud-focused unit. The other divisions will have their own CEOs and boards.

It would not be the first time Alibaba has spun off its business units. In 2011, the company hived off its fast-growing payments arm Alipay, which later evolved into the fintech major Ant Group.

Bank of America analysts described Alibaba’s restructuring as “an important experiment,” which would test whether or not China’s biggest companies could meet the demand to “contribute to society.”

Morgan Stanley said the announcement would step up support for private sectors and platform companies.

Major Internet firms Tencent, Meituan and JD.Com rose between 1.8 percent and 4 percent, cheered by Alibaba’s breakup plan.

China’s CSI 300 benchmark, meanwhile, edged up 0.2 percent.


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