March 29 (Reuters) – Shares in Alibaba Group ( 9988.HK ) and other leading Chinese technology companies rose on Wednesday as investors cheered an unprecedented restructuring of the company founded by Jack Ma. Dept.
Alibaba said on Tuesday it plans to split into six units and explore fundraising or listings for most of them, in the tech group’s biggest reorganization in its 24-year history.
The group’s Hong Kong-listed shares rose as much as 16.3%, after a 14.3% rise in its US-listed shares overnight. Its e-commerce rival JD.com Inc ( 9618.HK ) rose 7% and gaming giant Tencent Holdings Ltd ( 0700.HK ) gained 5%.
That compares with a 2.3% advance in the benchmark Hang Seng Index (.HSI) and a 3.2% gain in the Hang Seng Tech Index (.HSTech).
Alibaba’s restructuring feels like a “continuation of government restructuring” of tech companies and the removal of large monopolistic businesses in China, said John Vidar, head of Asian special situations at Pictet Asset Management.
“We think this could be a sign that we are getting closer to the end of the regulatory probe into Baba, after which we expect the company to return to the good graces of regulators and policymakers.”
China’s unprecedented regulatory crackdown over the past two years has wiped billions in market value from its key domestic companies, mainly in the internet, private education and property sectors, and weighed on investor sentiment.
Alibaba said on Tuesday that it will be divided into six divisions: 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 has long planned to spin off individual business units, according to two sources familiar with the company’s thinking.
“The consensus inside and outside of Alibaba was that the stock was trading at a huge discount to the intrinsic value of the businesses,” one said, adding that the company was “too bloated.”
There will be five initial public offerings from the units, while Alibaba’s main revenue drivers Taobao and Tmall remain with the current listed company, the person said.
Hong Kong is the most likely location for these IPOs, said the person, and a separate source familiar with capital market transactions by Chinese tech companies.
Alibaba did not immediately respond to a request for comment.
Is the pain over?
In Japan, Softbank Group Corp ( 9984.T ), which owns a 13.7% stake in Alibaba, rose 6%.
Alibaba itself will be re-organized into a holding company structure, with Daniel Zhang retaining his position as group CEO, with six sub-divisions each with their own CEOs and boards.
The overhaul is the most significant in the company’s history and comes after Beijing introduced a years-long regulatory crackdown on the technology sector, where Alibaba has been a common target.
A day before the restructuring was announced, Alibaba founder Ma, who has been out of mainland China since late 2021, visited a primary school in Hangzhou, the city where Alibaba is headquartered.
Brian Dycongo, who tracks China’s tech sector at Stansberry Research, says that in addition to enabling higher valuations, restructuring better protects individual sectors from future government regulation.
“Any new regulations will not affect the whole company now – only the specific segment that the regulation covers,” Dykango told Reuters.
Reporting by Josh Horwitz, Ken Wu, Selina Li in Shanghai and Tony Kwok in Hong Kong; Anirban Chen and Ken Li in New York and Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman and Sam Holmes
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