Alibaba may cede control of new businesses if they list after break-up

Alibaba will consider ceding control of some of its businesses if they opt to list as part of a break-up into six semi-autonomous units, top executives said as the Chinese tech group maps out its biggest restructuring in years.

“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 chief financial officer Toby Xu during an investor call on Thursday.

The group on Tuesday announced an overhaul that would split it into six business units, with their own chief executives and controlled by a holding company. Each unit would be allowed to bring in outside capital and eventually pursue their own initial public offerings.

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.”

Xu said Alibaba would also keep selling down some of its outside investments. “We will continue to monetize certain of the less strategic investments in our investment portfolio in order to improve our capital structure,” he said, adding that the group would also carry on with buying back its shares as part of a previously authorized $25bn program .

The ecommerce-led group has already been selling off stakes in some portfolio companies, offloading 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 Morningstar, in a note to clients, forecasts 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, which will take time, but we will continue to make evaluations,” 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.