Alibaba Group said it intends to spin off its logistics arm, Cainiao Smart Logistics Network, through a Hong Kong listing.

Hong Kong’s stock exchange has already green-lit the spin-off, which will leave the Hangzhou-based holding company with over 50% of Cainiao. Alibaba owns about 69.54% of Cainiao as of Tuesday’s announcement.

Alibaba said in a filing that the spin-off will add to Cainiao’s value, which will in turn benefit Alibaba as Cainiao’s controlling shareholder.

Established a decade ago, Cainiao has grown into a profitable enterprise and the largest cross-border e-commerce logistics services provider globally, according to consultant CIC.

Positioned For Growth

Cainiao was co-founded by Alibaba and has nurtured those close ties since, leveraging its parent’s e-commerce know-how and access to the world’s largest pool of merchants.

This birthright positions Cainiao to ride the logistics industry’s growth as merchants increasingly seek to broaden their international reach. The global e-commerce logistics market is expected to reach RMB6.1 trillion ($843 billion) by 2027.

While Cainiao continues to directly serve merchants on marketplaces within the Alibaba ecosystem, Tmall Global and Tmall Taobao World, and is the principal logistics service provider for the AliExpress ecosystem, it is also free to build business elsewhere.

Cainiao serves merchants and brands on other international e-commerce platforms, as well as other industries beyond traditional e-commerce, such as automotive, new energy and other industrial manufacturers.

Its revenue from Alibaba accounted for about 30% of its total revenue for the three years ended March 31, 2023 and three months ended June 30, 2023. Cainiao serves over 100,000 merchants and brands and delivered more than 1.5 billion cross-border e-commerce parcels in its last fiscal year.

Cainiao’s early advantages will be hard to replicate. It has purpose-built one of the world’s largest global smart logistics networks, covering over 200 countries and regions. Critically, it has a last-mile network of over 4,400 delivery stations and over 170,000 “pick-up, drop-off” stations globally as of June 30.

Cainiao’s standard cross-border express delivery solution has reduced typical delivery time between China and major international destinations from 30 to 60 days to 10 days or less, at a price as low as a cup of coffee. Its premium cross-border express delivery reduces delivery time to five days between China and select countries.

Innovation is also driving a gap between Cainiao and its competitors. It draws upon artificial intelligence to optimize operations. It also boasts proprietary technologies such as its Xiaomanlv intelligent unmanned electric delivery vehicle.

Unlocking Value

In March, Alibaba embarked on a major reorganization, turning itself into a holding company of six major business clusters and other businesses. The move frees managers across the umbrella company’s portfolio to react faster to market changes.

Alibaba said its board considers that a spin-off would benefit both Alibaba and Cainiao as investors would be better able to value Alibaba as well as better assess Cainiao on its own merits. Cainiao’s business would also appeal to a more specialist investor base than Alibaba’s more diverse business model.

The plan is to spin off Cainiao via a global offering of Cainiao shares, comprising a Hong Kong public offering and an international offering. Still, the size and structure of the global offering and Alibaba’s exact holding in Cainiao, have not yet been finalized.

The spin-off is subject to, among other things, approval from the Listing Committee of the Hong Kong Stock Exchange for listing of, and permission to deal in, the Cainiao shares. The share sale is also awaiting the completion of the filing with the China Securities Regulatory Commission and the final decisions of Alibaba’s board and of Cainiao’s board of directors and shareholders.