Alibaba to Spin Off Cainiao Logistics Unit Amid Value Unlocking Push

Chinese e-commerce giant Alibaba (NYSE: BABA) would spin off its logistics arm Cainiao Smart Logistics Network Ltd amid the continued value-unlocking push.

Alibaba is looking to list the business in Hong Kong and has received approval from the Hong Kong exchange to list the company. Alibaba co-founded Cainiao in 2013 and the segment helps it fulfill domestic Chinese deliveries within 24 hours and international deliveries within 72 hours.

Currently, Alibaba holds nearly 70% stake in Cainiao, and even after the listing it intends to hold over 50% stake in the company. So far, we don’t have any details on the IPO data and price and Alibaba said that there is “no assurance” that the spinoff would be completed. Reports however suggest that the initial stock sales could total $1 billion.

Alibaba to list Cainiao in Hong Kong

Nonetheless, Cainiao could become the first company that Alibaba lists as part of its business transformation. In March, the Chinese tech giant announced a business restructuring and said that it would become a holding company while splitting into the following six business units – all of which have the ability to consider capital raising and separate listings. The following are the six units.

• Cainiao Smart Logistics which holds Alibaba’s logistics business.
• Taobao Tmall Commerce Group – that has Alibaba’s online shopping platforms like Tmall and Taobao.
• Global Digital Commerce Group which houses the company’s international e-commerce operations including AliExpress.
• Cloud Intelligence Group which would include the company’s lucrative cloud and AI business.
• Local Services Group which is the company’s food delivery and mapping businesses.
• Digital Media and Entertainment Group which houses the company’s streaming operations.

Along with the US, Alibaba is also listed in Shanghai and Hong Kong. However, the company opting for only a Hong Kong listing for Cainiao is not surprising given the US-China tensions. Notably, Alibaba also gave the US markets a miss when it was looking to list its fintech subsidiary Ant Financial in 2020. The IPO was eventually blocked by China at the last moment.

Ant Financial IPO

Ant was set to raise $37 billion from the mammoth IPO which would have made it the biggest listing ever – surpassing the record set by Alibaba. The IPO received bids worth $3 trillion and Ant was set to have a market cap in excess of JPMorgan Chase, the largest US bank.

Earlier this year, China imposed a nearly $1 billion fine on Ant which has helped pave the way for an eventual IPO. The listing might not happen anytime soon as Chinese rules mandate that if there is a change in management control companies have to wait for at least three years to list on the country’s domestic A-share market.

The wait time stands at two years for Shanghai’s STAR market while it is only one year for listing in Hong Kong.

Since the management changes at Ant took place earlier this year, the earliest Ant can list is in 2024 in Hong Kong.

Alibaba stock has underperformed markets

Coming back to Alibaba, when it announced the business reorganization in March, it said that the move would help “unlock value” for stockholders. Markets reacted positively to the reorganization and BABA stock soared after the announcement.

However, after the initial bump, BABA stock has now pared gains and is in the red this year. It won’t be prudent to single out the company though as Chinese stocks in general have underperformed markets amid slowing economic recovery.

The Hang Seng Index is in the red this year even as US tech stocks are still trading with strong YTD gains despite the recent sell-off.

BABA also revamped its leadership

In May, Alibaba said that Daniel Zhang, who is the current CEO and chairman of Alibaba Holdings – the parent company of the conglomerate – would step down in September.

The company has bifurcated the roles and Joseph C. Tsai, who’s currently Executive Vice Chairman of Alibaba Holdings would become the chairman while Eddie Yongming Wu who’s currently the Chairman of Taobao and Tmall Group would become the CEO.

Notably, when Alibaba announced the business reorganization in March, Zhang also took over as the CEO of Cloud Intelligence Group along with his position as the CEO and chairman of Alibaba Holdings.

The move highlighted the importance of the Cloud segment for BABA – which also happens to house its AI business.

Alibaba is progressing with its AI efforts as US and Chinese tech companies vie for global AI dominance.

However, while US AI plays have seen a valuation re-rating and Nvidia joined the $1 trillion club amid the AI euphoria, Chinese AI companies haven’t seen much interest from investors as their stocks continue to sag.

Alibaba Stock is Trading Lower Today

Despite reports of Alibaba spinning off Cainiao, BABA stock is trading lower in US premarkets today. Futures point to a weak opening for the US markets also as the September sell-off does not seem to get over.

Many US fund managers now find Chinese stocks “uninvestable” after the tech crackdown of 2021. Cathie Wood of ARK Invest is among those who sold off Chinese stocks in 2021 amid the tech crackdown.

Meanwhile, after many quarters of tepid sales growth, Alibaba reported a 14% YoY rise in the June quarter revenues which was the highest growth rate in almost two years. It also touted AI and business reorganization as key drivers even as markets have so far been lukewarm to the biggest restructuring in the company’s history.