Alibaba CEO says company is moving toward giving up some business units

FILE -- The logo of the Chinese technology firm Alibaba is seen in its office in Beijing on August 10, 2021. The CEO of China's e-commerce and financial giant, said on Thursday that the company is moving toward giving up control of some of its business units in order to become a capital operator to maximize the value of its sprawling businesses. Daniel Zhang announced earlier this week that the plan to split Alibaba into six main groups is a prelude to stock listing of some of its companies. The restructuring marks a new stage in Alibaba's growth after a series of setbacks as regulators cracked down on it and other tech companies.

In a conference call, Zhang said that a holding company that is the controlling shareholder of the business group companies will be in the nature of a holding company, which has its headquarters in the eastern city of Hangzhou.

After they go public, the company's CFO, Toby Xu, said the company would continue to evaluate the strategic importance of group companies, and decide whether or not to retain control. He didn't say when they might go public.

The market is the best litmus test, so each business group company can pursue independent fundraising and IPOs as and when they are ready, Xu said.

Since the restructuring was announced Tuesday, the stock prices in Hong Kong and New York have rallied nearly 15%. The Hong Kong stock was up 0.9% by midday Thursday.

The plan, and the return of Alibaba founder Jack Ma to China after months abroad, appears to be a turnaround after several hard years. The brakes on a planned initial public offering of Alibaba's financial affiliate Ant Group were put in place in 2020 by Chinese regulators who singled out Alibaba for scrutiny in a crackdown on technology and internet companies.

Ma had kept a low profile with few public appearances since Nov. 2020 when he publicly criticized China's regulators and financial systems during a speech in Shanghai.

Ant had been set to raise $34.5 billion in what would have been the world's largest share offering at the time. It was later investigated and fined $2.8 billion for breaching antitrust rules as Chinese authorities cracked down on the once-freewheeling technology industry.

An analyst note from Moody's Investor Service said that the looser connections between business units is in line with the regulatory stance of encouraging competition.

The restructuring plan might address antitrust concerns, because as stated by Zhang, each business unit of Alibaba would be empowered to make its own decisions and raise capital independently. He said that having business units operate independently should promote innovation and growth after years of harsh COVID 19 restrictions that battered China's economy.

Alibaba's restructure, the first of its kind in the Chinese technology industry, could be an example for online games company Tencent to follow suit. Tencent's shares went up after Alibaba's announcement on Monday.

According to a report by CreditSights, we think that Alibaba's new organizational structure could be used by Chinese regulators as a template for other Chinese Big Tech firms.