Alibaba to continue selling down outside investments

Alibaba has said it will keep selling down some of its outside investments as the Chinese tech giant kicks off a broad restructuring of its bloated business empire.

“We will continue to monetise certain of the less strategic investments in our investment portfolio in order to improve our capital structure,” said chief financial officer Toby Xu during an investor call on Thursday. He said the group would also carry on with buying back its shares as part of a previously authorised $25bn programme.

On Tuesday, the group announced an overhaul that would split it into six business units controlled by a holding company, allowing each unit to bring in outside capital and eventually pursue their own initial public offerings. Alibaba may fully exit the businesses after their market debut, Xu said.

“After going public, we will continue to evaluate the strategic importance of these companies to Alibaba and, on that basis, we will decide whether or not to continue to retain control,” said Xu.

Chief executive Daniel Zhang said that while the split mirrored the lines of its existing business groups, the relationship between Alibaba and its units would change.

“Alibaba will be more in the nature of an asset and capital operator than a business operator,” he said. “Each business group company will have its own corporate entity . . . we expect that these changes will unleash more vitality from our business units.”

The ecommerce-led group has already been selling off stakes in some portfolio companies. It offloaded all its shares in Indian digital payments provider Paytm, which were valued at $310mn at the end of last year, through two block trades since January. Alibaba’s fintech affiliate Ant Group still owns a 25 per cent stake in Paytm.

The move to downsize Alibaba’s investment portfolio mirrors action taken by rival Tencent, another major funder of tech start-ups, which is selling off assets under pressure from regulators concerned about its enormous influence in the sector.

Chelsey Tam, analyst at Morning Star, in a note to clients, forecast that Alibaba’s business units could “meet the listing requirements of Hong Kong Main Board listing rules”, which include revenue, profit and management targets, after three years.

Alibaba has not provided a timeline for when the units might seek outside capital or list publicly. The Alibaba holding group will retain full ownership of online sales platforms Tmall and Taobao, which generated more profits than the group as a whole in its last fiscal year.

Xu also acknowledged that there had been little movement on the group’s plan to convert its secondary Hong Kong listing into a primary listing, which had originally been set for the end of 2022.

“We will continue to evaluate market conditions and external circumstances, that will take time but we do continue to make that evaluation,” he said.

The change to a primary listing would lay the groundwork for additional mainland Chinese investors to buy its shares, but it would also expose the company to greater disclosure requirements and is likely to force its executives to report their personal sales of Alibaba stock.

Lax rules for foreign issuers including Alibaba in the US currently exempt its executives from making the information public. Alibaba in November also attributed part of the delay to needing to create a new stock compensation plan for employees.