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Alibaba’s $20 Billion Logistics Wing Looking at IPO

Alibaba may be spinning out its logistics arm in an initial public offering (IPO) that could raise as much as $2 billion.

Cainiao Network Technology plans to raise the funds in a listing in Hong Kong in early 2024, according to a Reuters report.

Alibaba didn’t respond to multiple Sourcing Journal requests for comment.

Chatter about a potential IPO picked up in March when Bloomberg reported that the $20 billion unit hired banks including China International Capital Corp. and Citigroup to help facilitate an offering.

The developments come after Alibaba said it plans to split itself into six separate business units, five of which can raise outside capital and potentially seek their own IPO, including Cainiao.

According to a March 28 regulatory filing, Alibaba’s new organizational and governance structure enhances agility, decision making, responsiveness and innovation.

Alongside Cainiao, the other five units include the company’s Cloud Intelligence Group, Taobao Tmall Business Group, Local Services Group, Global Digital Business Group and Digital Media and Entertainment Group.

The reorg appears to be aimed at avoiding government scrutiny, as regulators have long targeted the tech giant and its founder Jack Ma. In April 2021, Alibaba was slapped with an 18.2 billion yuan ($2.8 billion) fine by regulators as part of an antitrust investigation.

Alibaba’s move mimics e-commerce rival, which separated its own logistics arm, JD Logistics, into a standalone unit in 2021. confirmed in March that subsidiaries JD Property and JD Industrials will spin off from the larger company when they are listed separately on the Hong Kong market.

Cainiao, which has reportedly started work on the IPO, is looking to raise up to $2 billion in Hong Kong, according to Reuters sources. The sources said the plans are subject to change.

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In the third quarter, Cainiao’s revenue grew 17 percent year over year to 23 billion yuan ($3.3 billion) of which 72 percent was generated from external customers. This is revenue before inter-segment elimination, and includes revenue from services provided to other Alibaba businesses.

After inter-segment elimination, Cainiao’s revenue grew 27 percent year over year to 16.6 billion yuan ($2.4 billion), on increasing revenue from domestic consumer logistics services and international fulfillment solution services.

The logistics division’s revenue growth outpaces Alibaba’s tepid overall sales progress. Sales at Alibaba improved just 2 percent during the same period to $247.8 billion yuan ($35.9 billion). The logistics segment had the fastest growth of all units, with the 27 percent revenue growth surpassing the 18 percent growth (both after inter-segment elimination) seen in the international commerce division.

Alibaba has significantly expanded the logistics business over the past year. In the third quarter, Cainiao opened five new international sorting centers for 15 total. When comparing the 2021 and 2022 third quarters, Cainiao expanded its percentage of revenue from 5 percent to 7 percent.

Cainiao ships more than 4 million parcels on a daily basis from China to overseas destinations, with the majority coming from merchants selling via Alibaba’s own international shopping sites, such as AliExpress and Lazada.

But the aim is to quintuple the volume of international parcels it handles from external clients by the end of the year, Ding Hongwei, general manager of Cainiao Technology and Global Express, told Forbes Asia in April.

Cainiao also charters roughly 200 flights a month and operates more than 40 warehouses outside China. It operates three warehouses in Houston, California and New Jersey, and works with FedEx and the U.S. Postal Service to deliver to U.S. customers.

The logistics wing spent $110 million to build a smart logistics hub at Belgium’s Liege Airport in late 2021, opened a Latin America headquarters in Sao Paulo, Brazil in late 2022 and partnered with DHL earlier this year to set up a $65 million joint venture in Poland. Cainiao also formed a joint partnership to build a $1.5 billion logistics center in Hong Kong that is slated to open in the third quarter.

In China, Cainiao continues to expand door-step delivery services for consumers. During the 11.11 Global Shopping Festival, peak daily door-step deliveries exceeded 18 million, including those delivered directly to door or through the firm’s last-mile delivery service, Cainiao Post.

Alibaba established Cainiao in 2013 to fulfill consumer orders within 24 hours in China and within 72 hours elsewhere in the world. Alibaba’s founding partners for Cainiao include department store owner Intime Group and conglomerate Fosun Group.

Alibaba took control of Cainiao in 2018 and has lifted its stake to 67 percent from 47 percent.

While Alibaba has not divulged potential listing venues for the other units, bankers point to Hong Kong’s status outside of Mainland China, which supports trade opportunities with the U.S.

Hong Kong recently eased its listing rules for tech startups, allowing companies with a valuation of at least $10 billion Hong Kong dollars ($1.3 billion) to sell shares, even if they have not yet generated any sales revenue.

In addition, the minimum valuation for companies with at least $250 million Hong Kong dollars ($31.9 million) in sales in the previous financial year has been lowered from $8 billion Hong Kong dollars ($1 billion) to $6 billion Hong Kong dollars ($764 million). This means that Cainiao meets the requirements to be listed under Hong Kong’s regulations, which took effect on March 31.