Alibaba to divide into six separate divisions

Chinese e-commerce conglomerate Alibaba Group Holding today hosted an early morning investor conference call to outline its plan for splitting into six units and explore fundraisings or listings for most of them.

“We believe this will allow all of our businesses to become more agile, enhance their business decision-making, and respond faster to market changes,” CEO Daniel Zhang told investors.

Under the restructure each unit will have its own CEO under a single holding capital and be able to seek outside capital or go public independently. They include Cloud Intelligence; Taobao (commerce platform) Small Business; Local Services; Global Digital Business; Cainiao Smart Logistics Network; and Digital Media and Entertainment.

While Alibaba maintains that the Chinese government did not order the restructuring, it is well known that President Xi Jinping believes the group has become too rich and powerful. The group is following the lead of its main rivals, Tencent and JD.com, which announced similar plans in December 2021 that were seen as a bid to appease Xi.

The move, first announced Tuesday, swiftly lifted shares of Alibaba and other leading Chinese tech firms as investors greeted an unprecedented revamp of entrepreneur Jack Ma’s group as heralding the beginning of the end to Beijing’s crackdown on the sector.

“The expectation is that other big Chinese tech giants could make similar moves, helping to potentially unlock more value, and aligning with authorities’ demands for greater competition as it ramps up its anti-trust drive,” commented Susannah Streeter, head of money and markets at UK financial services group Hargreaves Lansdown.

Analysts believe that Alibaba’s major overhaul will return the spotlight to Ant Group, whose record-breaking US$34.5 billion (£28 billion) planned initial public offering (IPO) on the Hong Kong and Shanghai exchanges in November 2020 were unexpectedly suspended. Alibaba has a 33% stake in Ant, which operates AliPay, one of China’s two dominant mobile pay apps.

At the time of the suspended IPO, Ma was Ant Group’s controller and he, together with executive chairman Eric Jing and CEO Simon Hu were summoned and interviewed by China’s regulators. The Shanghai Stock Exchange said Ant Group had reported “significant issues” and indicated that it did not meet the conditions for listing or “information disclosure requirements.”

However, in January this year it was announced that Ma was giving up control of Ant after shareholders agreed to reshape its shareholding structure to make it “more transparent and diversified” and his voting rights would reduce to just 6.2%.

Ant has also recently secured approval from the China Banking and Insurance Regulatory Commission (CBIRRC) earlier this year to expand its consumer finance business, indicating that the group could be moving one step closer to resolving regulators’ concerns.

“I truly believe Alibaba is aiming for a bigger target,” Kingston Securities Executive Director Dickie Wong told CNBC. “In terms of the bigger picture, obviously would be Ant Group [being] re-introduced into the equity market.

“This is probably the biggest goal for Alibaba Group itself,” Wong said of Alibaba’s revamp plans, adding that the expected listing in Hong Kong will not happen anytime soon “but there’s big hope” for a sooner-than-later deal.

Coinciding with the announcement, reports earlier this week suggested that Alibaba’s founder, who has rarely been seen in public in the past three years, had resurfaced to give a talk at a school in Hangzhou. Ma has maintained a low profile since criticising China's financial regulators in 2020 and was the country’s most high-profile billionaire to have disappeared amid a crackdown on tech entrepreneurs. He recently returned to China after more than a year overseas, according to the South China Morning Post.

Ma told his school audience about the potential challenges of artificial intelligence (AI) to education, according to the school’s social media page. “ChatGPT and similar technologies are just the beginning of the AI era. We should use artificial intelligence to solve problems instead of being controlled by it,” he said.

Shares in SoftBank Group Corp rose sharply on Wednesday after Alibaba announced its restructuring plan. The Japanese technology investor has a 13.7 % stake in the group.

 

Bank of England toughens stance on LDI funds

The UK’s banking sector is resilient to rising interest rates, the Bank of England has asserted.

The central bank's financial policy committee said that Britain’s banks had the capacity to support lending to businesses and households even if interest rates climb higher than anticipated.

Europe’s central bankers have sought to quell any fears that the banking sector is coming under severe strain after several recent  high-profile bank failures in the US triggered a loss of confidence in Credit Suisse.

However, the BoE is clamping down on the leveraged funds that were at the heart of last September’s pension crisis in the UK and issued a warning on the risks posed by the opaque private credit markets to the country’s financial stability.

The Bank will, for the first time, set minimum buffers that liability-driven investment (LDI) funds should hold to be able to withstand shocks in the UK government bond market.

The move comes after UK defined benefit pension schemes, which use LDI funds to manage risks, were thrown into turmoil when last autumn’s mini-budget introduced by former prime minister Liz Truss’s short-lived administration triggered a sell-off in gilts. This caused a jump in cash calls by LDI funds and led to a spiral of gilt selling, forcing the Bank to step in and spend £19.3 billion (US$23.8 billion) to stabilise the bond market.

The BoE’s financial policy committee set out the new rules for LDI funds and also expressed concerns about the potential threat posed by riskier corporate credit markets, a section of the financial system that includes leveraged loans used for private equity buyouts, high-yield bonds and private credit.

The committee said these markets had almost doubled in the past decade and warned that a “prolonged period of negative growth amidst persistently high rates could lead to a material increase in expected default rates in these markets and sharp falls in prices”.

Regulators’ ability to assess the risks this poses is hampered by a lack of data. The committee said it would monitor developments closely and would carry out work to better understand the scale of these markets.

It came as the committee also:

• Announced a tightening up of rules on money market funds to withstand the risk of sudden investor withdrawals;
• Urged financial firms to be improve their “operational resilience” following last year’s stress test for cyberattack threats;
• Decided to keep a rainy day buffer that banks are required to hold at 2%. This so-called countercyclical capital buffer can be lowered in times of stress to help banks absorb losses.

The new rules for LDI funds stipulate that these vehicles must be able to withstand at minimum a jump in gilt yields of 250 basis points (bps), which compares with the 160 bp shock that unsettled the LDI industry last autumn.