ALIBABA PAYS $807M TO TAKE MAJORITY OWNERSHIP IN LOGISTICS AFFILIATE CAINIAO

POSTED 5 HOURS AGO BY JON RUSSELL (@JONRUSSELL)

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Alibaba is getting serious about logistics after it agreed to invest RMB 5.3 billion ($807 million) in order to take majority ownership in subsidiary company Cainiao.

Cainiao was created four years ago alongside eight other backers to bring organization in Chinese logistics, particularly around e-commerce deliveries. The company raised its first outside funding in March 2016 — reportedly RMB 10 billion ($1.54 billion) at a RMB 50 billion ($7.7 billion) valuation — from backers including Temasek Holdings and GIC in Singapore, Malaysia’s Khazanah Nasional and China-based Primavera Capital.

It is currently not profitable, but investors see its close relationship with Alibaba as the ticket to developing a lucrative business. Alibaba said the goal is to enable e-commerce services in China to fulfill customer orders within 24 hours, and those overseas within 72 hours, and Cainiao is a core part of that. Indeed, Alibaba said it plans to invest over $15 billion in the next five years to develop its global logistics network.

Cainiao itself just set up a billion-dollar fund with insurance firm China Life to speed up China’s parcel networks with a range of new handling and sorting offices.

Today’s investment is likely to go through next month and it will take Alibaba’s ownership from 47 percent to 51 percent, which in theory gives Cainiao a valuation of RMB 132.5 billion ($19.9 billion). But that’s theoretical because Alibaba’s motivation is likely to have been influenced by other matters.

The SEC last year launched a probe into Alibaba’s accounting systems, and whether it has violated federal securities laws. The firm’s accounting of Cainiao was one component to that, since it only listed some financial information as a minority equity holder. Now, as a majority stakeholder following this deal, it is likely that Alibaba’s transparency over the company will increase going forward. Beyond more information for regulators, it may also appease shareholders curious to learn more about a company Alibaba is helping to bankroll.

Alibaba’s other affiliate companies include Koubei, which got a $1.1 billion injection earlier this year, and Ant Financial, which is valued at over $60 billion and tipped to go public soon.