Shares in Alibaba Group and other leading Chinese tech companies have surged as investors hailed an unprecedented revamp of the Jack Ma-founded company as the beginning of the end of Beijing’s crackdown on the industry.
Alibaba said Tuesday it planned to split into six units and explore fundraising or listings for most of them, in the technology conglomerate’s largest restructuring in its 24-year history.
The group’s Hong Kong-listed shares rose as much as 16.3 percent on Wednesday, following a 14.3 percent rise in US-listed shares overnight. Its e-commerce rival JD.com Inc rose 7 percent and gaming giant Tencent Holdings Ltd gained 5 percent.
That compares to a 2.3 percent increase in the benchmark Hang Seng Index and a 3.2 percent gain for the Hang Seng Tech Index.
Alibaba’s revamp “feels like a continuation of government restructuring” of the tech companies and the dismantling of China’s big monopolies, said Jon Withaar, head of Asia special situations at Pictet Asset Management.
“We think this is likely a sign that we are moving closer to the end of regulatory scrutiny on BABA and we would expect the company to regain favor with regulators and policymakers after this.”
China’s unprecedented regulatory crackdown over the past few years against its leading domestic companies, mainly from the internet, private education and real estate sectors, had wiped out billions in market values and weighed on investor sentiment.
Alibaba said on Tuesday 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 had long been planning to spin off individual business units, according to two sources familiar with the company’s thinking.
“There was a consensus inside and outside Alibaba that the shares were trading at a deep discount to the companies’ inherent value,” one of the people said, adding that the company had become “too inflated.”
The person said there would be five IPOs of the units, while Taobao and Tmall, Alibaba’s main sources of income, 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 Chinese tech companies’ capital market transactions.
Alibaba did not immediately respond to a request for comment.
In Japan, Softbank Group Corp., which has a 13.7 percent stake in Alibaba, shot up 6 percent.
Alibaba itself would reorganize into a holding company structure, with Daniel Zhang retaining his position as group CEO and the six subdivisions each with their own CEOs and boards of directors.
The revamp is the most significant restructuring in the company’s history and comes after Beijing launched a years-long regulatory crackdown on the technology sector in which Alibaba was a common target.
A day before the reorganization was announced, Alibaba founder Ma, who has not been in mainland China since late 2021, was seen visiting a primary school in Hangzhou, the city where Alibaba’s headquarters are located.
Brian Tycango, who follows the Chinese tech sector at Stansberry Research, says the restructuring not only allows for higher valuations, but also better protects individual divisions from future government regulation.
“New regulations now probably won’t affect the entire company — just the specific division that those regulations apply to,” Tycango said.
