Splitting into Six Units and Exploring Fundraisings or Listings for Most of Them

On Tuesday, Alibaba Group announced its plans to divide into six units, with most of them seeking fundraisings or listings, in its largest restructuring in its 24-year history. This decision comes as Beijing promises to ease its regulatory crackdown and support its private enterprises. The company's U.S.-listed shares rose by 8% after the announcement, which comes after a 70% decrease in Alibaba's stock since the crackdown began in 2020.

  • Each business group will have its own CEO and board of directors, and they will have the flexibility to raise outside capital and seek an initial public offering, except for Taobao Tmall Commerce Group
  • The restructuring aims to make the organization more agile, shorten decision-making links, and respond faster to the rapid changes in the market

Despite the "lightening and thinning" of middle and back office functions, Daniel Zhang will continue to serve as chairman and CEO of Alibaba Group. The announcement is expected to release additional value and reduce regulatory worries for the company.

Jack Ma Is Returning

One of the largest corporate moves by a Chinese tech company in recent years is Alibaba's restructuring, which comes amidst increasing regulatory oversight that has caused deals to dry up and significantly decreases foreign interest.

  • Although the authorities have softened their tone towards the private sector to boost the economy that has been struggling with COVID-19 curbs, companies remain hesitant as they await new supportive policies and regulatory frameworks
  • The return of Alibaba's founder, Jack Ma, after more than a year abroad, has helped boost business confidence among entrepreneurs, and China's new premier, Li Qiang, has been urging Ma's return since late last year to support the private sector

Stuart Cole, head macroeconomist at brokerage Equiti Capital, believes that the restructuring was something that Alibaba has been planning for some time and was only waiting for the right opportunity to do so. The restructuring adds flexibility and adaptability to the company, which has become a behemoth, according to Cole.

Beijing Is Warming Up

According to Xin Sun, an expert in Chinese business, suggested that there may have been an agreement between Ma and the government for his return, as it sends a positive signal to investors and the private sector. This move could help boost confidence in the entrepreneurial class and encourage economic growth.

  • Beijing has also been relaxing some of its regulatory measures, such as granting licenses to foreign games and allowing Chinese ride-hailing company Didi to expand its business
  • Chinese officials have separately reassured platform companies that the regulatory crackdown is easing, recognizing the importance of the digital economy for economic growth
  • However, it is important to note that the regulatory environment is not expected to return to how it was before the crackdown

Going forward, regulators plan to strengthen data security, promote financial stability, facilitate "common prosperity," and prevent monopolies, while reducing the level of scrutiny.

Investors Are Warming Up

Investors are increasingly optimistic about the Chinese government's support for the tech sector, which has led to a significant increase in the value of Chinese technology stocks. Recent developments, such as Beijing's decision to allow the US accounting watchdog to access Chinese companies, signal a shift in the government's approach to the tech sector. This change suggests that Beijing is now prioritizing the growth and development of the industry, in addition to regulating it.

  • Furthermore, a PBOC official stated in a January interview with state media that the government intends to support the growth of platform companies, acknowledging their potential to drive development, create jobs, and enhance global competitiveness
  • The official also provided insight into how businesses can access funding and Beijing's perspective on IPOs, indicating that large and medium-sized enterprises will have better access to credit and financing in the stock and bond markets

Finally, recent declarations by China’s anti-monopoly regulator, the State Administration for Market Regulation (SAMR), have boosted business confidence in the sector, providing a solid guarantee for its future. The speed and extent of the platform sector's recovery in the coming months will ultimately determine the effectiveness of the new regulatory measures.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. Please note that the writer of this article is not registered as a financial advisor.

Credits

Photo by tommao wang on Unsplash.