Shares of Alibaba Group and other major Chinese tech firms rose as investors cheered an unprecedented overhaul of the company founded by Jack Ma, heralding the beginning of the end of Beijing’s crackdown on the sector.
Alibaba said on Tuesday it plans to split into six units and explore fundraising or listings for most of them, as part of the tech conglomerate’s biggest restructuring in its 24-year run. history.
The group’s Hong Kong-listed shares jumped 16.3% on Wednesday, following a 14.3% rise in its U.S.-listed shares overnight. E-commerce rival JD.com Inc rose 7% and gaming giant Tencent Holdings Ltd gained 5%.
That compares with a 2.3% jump in the benchmark Hang Seng index and a 3.2% gain for the Hang Seng Tech index.
Alibaba’s overhaul “appears to be a continuation of government restructuring” of technology companies and the dismantling of large monopolistic companies in China, said Jon Withaar, special situations manager for Asia at Pictet Asset Management.
“We think this is likely a sign that we are getting closer to the end of BABA’s regulatory review and we expect the company to be back in the good graces of regulators and policymakers after that.”
China’s unprecedented regulatory crackdown over the past two years against its major domestic companies, mainly in the internet, private education and real estate sectors, had wiped billions from market values and weighed on sentiment. investors.
Alibaba announced on Tuesday that it will 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 had long planned to create individual business units, according to two sources familiar with the company’s thinking.
“There was a consensus inside and outside of Alibaba that the stock was trading at a significant discount to the inherent value of the companies,” one of the people said, adding that the company had become “too bloated”.
The person said there would be five initial public offerings of the units, while Taobao and Tmall, Alibaba’s main revenue drivers, will remain with the currently listed entity.
Hong Kong is the most likely location for these IPOs, the person said, and a separate source familiar with capital markets transactions by Chinese tech companies.
Alibaba did not immediately respond to a request for comment.
In Japan, Softbank Group Corp, which owns a 13.7% stake in Alibaba, jumped 6%.
Alibaba itself would reorganize into a holding company structure, with Daniel Zhang retaining his position as group CEO and the six sub-divisions each having their own CEOs and boards.
The overhaul is the biggest restructuring in the company’s history and comes after Beijing launched a years-long regulatory crackdown on the tech sector, in which Alibaba was a common target.
A day before the reorganization was announced, Alibaba founder Ma, who had been out of mainland China since late 2021, was spotted visiting an elementary school in Hangzhou, the city where Alibaba is headquartered.
Brian Tycango, who follows China’s tech sector at Stansberry Research, says that in addition to allowing for higher valuations, the restructuring better protects individual divisions from future government regulation.
“Any new regulations likely won’t affect the entire business now — just the particular division covered by that regulation,” Tycango said.