Alibaba sends out SOS on Hong Kong’s market

Return to sender. Alibaba is delivering a wake up call for owners of unlisted Chinese assets. The e-commerce giant ditched plans to float its logistics unit in Hong Kong and offered to buy out minority shareholders including Singapore's Temasek. It's an underwhelming better-than-nothing deal.

Cainiao Smart Logistics Network filed to go public in September to much fanfare. The subsidiary would have been the first of several spinoffs from Alibaba as part of a historic six-way breakup. At the time, Cainiao was planning to raise at least $1 billion in an initial public offering at a valuation of up to $20 billion, IFR reported, citing people familiar with the deal.

The aborted plan is an obvious blow to Hong Kong. IPO volumes in the centre plunged 56% last year, to $5.9 billion and the Hang Seng Index is one of the worst performing global benchmarks; concern over China's economy and Beijing's tightening regulations is driving away investors. On a call with analysts on Tuesday, Alibaba Chairman Joe Tsai blamed a "pretty depressed" market and lack of liquidity, both now and in the foreseeable future.

The exit Alibaba is offering to investors, including employees, who collectively hold 36.3% of the company, is not the worst. The implied $10 billion price tag for Cainiao, which made a net loss in the fiscal year to March 2023, represents 0.7 times forecast 2024 sales, according to analysts at Jefferies. That multiple is slightly higher than mainland listed rivals like S.F. Holding but below global peers DHL, UPS and FedEx, per LSEG data.

For Temasek, GIC and the other minority owners, it's a consolation prize. Alibaba's decision to abandon the Cainiao listing completely, rather than delay it, suggests Chinese markets are unlikely to recover meaningfully any time soon. Tsai essentially confirmed the company will no longer pursue other listings, saying "It doesn't make sense for us to grind into these capital market deals". The failed Cainiao spinoff will be Alibaba's second, after it walked back plans to list its cloud computing arm.

Other investors will be paying attention. Globally, sluggish M&A and IPO activity has left private equity firms stuck with more than $3 trillion of unsold investments, according to consultancy Bain. Those with large exposure to Chinese and private markets, such as Temasek, have to choose between exiting at much lower-than-expected valuations or holding out in hope that markets will improve. The Cainiao deal suggests it's not a real choice at all.