Alibaba's Cainiao sets sail for a Hong Kong IPO

Cainiao, the logistics branch of the Alibaba Group, is a powerhouse for speedy package delivery.

Alibaba's Cainiao sets sail for a Hong Kong IPO
People stand in front of a sign of Alibaba Group in Shanghai, China, September 1, 2022. REUTERS/Aly Song

The backstory: Cainiao, the logistics branch of the Alibaba Group, is a powerhouse for speedy package delivery, promising to deliver within 24 hours in China and 72 hours anywhere in the world. Cainiao has partnered with over 500 logistics companies globally and has 15 sorting centers around the world.

Even though it has been operating at a loss, Cainiao's revenue has seen double-digit growth, and it shipped over a billion packages during Alibaba's Singles' Day festival.

More recently: Last week, Alibaba announced plans to split its US$220 billion business into six units, including e-commerce, media and the cloud, with each unit considering fundraising for initial public offerings (IPOs). During a conference call, CEO Daniel Zhang hinted that the company might give up control of some of the businesses, although he didn't provide a timeline.

The development: Now, Cainiao is reportedly teaming up with Citigroup and China International Capital to prepare for a Hong Kong IPO, according to Bloomberg, citing people familiar with the matter. If all goes well, Cainiao will be the first of Alibaba's six business units to hit the public markets by the end of the year. The company is currently valued at over US$20 billion, but the IPO size and timing are still up in the air and depend on market conditions. When asked about the IPO plans, a Cainiao representative said they don't have a clear plan or timeline, while Citigroup declined to comment, and CICC has yet to respond.

Key comments:

“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” said Daniel Zhang, Alibaba CEO, in a statement.

“If they are going to provide their existing stockholders the option to subscribe, or if they are going to spin-out these units instead of raising fresh capital, then they might have to do the listing in Hong Kong as not everyone will have access to A-shares market,” said Sumeet Singh, head of equity research, IPOs and placements at Aequitas Research Pvt, referring to Alibaba’s latest announcement.

“For the big techs, spinoffs no doubt can boost shareholder return, unlock the company value and ease regulatory concerns related to anti-trust,” said Willer Chen, senior analyst at Forsyth Barr Asia. “For more than a year or so, there has been very light demand on the deal side as market conditions were weak and investors disheartened. Now, the environment seems more friendly for valuation, which make sense for big tech subsidiaries that have a mature business and strong cash need to consider IPOs.”