Alibaba’s Sun Art Sale, and a China-Kazakhstan Dual Listing

Alibaba has announced a plan to sell its majority stake in the operator of the RT-Mart supermarket chain. And a Chinese mining startup plans to list shares in both Hong Kong and Kazakhstan
By Doug Young & Rene Vanguestaine
Alibaba recently announced the $1.7 billion sale of Sun Art, operator of the RT-Mart supermarket chain, which marks a significant shift in the e-commerce giant’s strategy and serves as a stark reminder of the perils of overambitious diversification. The deal, which will incur a similar-sized loss of $1.8 billion, signals the end of Jack Ma’s ambitious “new retail” vision that sought to merge traditional retail with digital channels.
We see this divestment as a necessary correction for a company that grew too diverse, too quickly. While Alibaba’s initial success in e-commerce was built on strong technological foundations, the company’s subsequent expansion reflected an almost hubris-like belief that their tech prowess could be applied universally across sectors. This approach led them to venture into numerous businesses with limited synergies, ultimately diluting their focus on their core strengths.
The contrast with Walmart’s success in the U.S. is particularly telling. While Walmart successfully added e-commerce capabilities to its existing brick-and-mortar empire, Alibaba’s attempt to move in the opposite direction – from asset-light digital operations to asset-heavy physical retail – proved considerably more challenging. Managing countless retail outlets requires a fundamentally different skill set from running an e-commerce platform. In their ambitious quest to be disruptors of traditional retail, Alibaba ultimately ended up disrupting itself.
The company’s recent strategic shifts, particularly following the departure of former CEO Daniel Zhang and the ascension of Chairman Joe Tsai and current CEO Eddie Wu, suggest a return to fundamentals. The abandonment of their earlier plan to split into six pieces, while initially puzzling, can now be seen as part of a broader reboot phase. Given Alibaba’s declining performance and stock price, albeit partly due to broader Chinese economic challenges, further disposals of non-core assets seem likely.
This strategic repositioning reflects a broader trend we’ve seen play out across different markets – the decline of the conglomerate model. While such structures fell out of favor in the West decades ago and are being questioned even in Japan, China is only now beginning to grapple with these issues. In any other market, some activist investors might have already forced the disposal of non-core assets, but Alibaba’s case represents a voluntary recognition of the need to refocus.
Jiaxin’s Dual Listing: A Bold Venture in Kazakhstan’s Mining Sector
Shifting focus to the mining sector, Jiaxin, a burgeoning startup, has unveiled its IPO aimed at financing the development of a tungsten mine in Kazakhstan. This IPO is particularly noteworthy for its unconventional strategy to secure dual listings in both Hong Kong and on Kazakhstan’s primary stock exchange in Astana. While the Hong Kong float comprises 125 million ordinary shares, the Astana listing involves a relatively modest 1.3 million shares.
This dual listing strategy appears to be a strategic maneuver influenced by geopolitical and economic considerations. The partnership between Jiaxin’s founder and the state-run mining giant Jiangxi Copper underscores a blend of entrepreneurial initiative and state-backed resources. Kazakhstan’s stable political and economic climate, coupled with its proximity to China, makes it an attractive locale for such ventures, aligning with the Belt and Road Initiative’s objectives to secure critical mineral supplies.
From an investment perspective, Jiaxin’s venture into tungsten production taps into a market essential for various industrial applications. The strategic logistics of mining in Kazakhstan and transporting resources via adjacent railways to China enhance operational efficiency compared to more logistically challenging regions like Africa. This geographical advantage, combined with Kazakhstan’s investment-friendly environment, positions Jiaxin as a potentially stable and profitable enterprise within the commodities sector. Our industry sources also reveal that several investment management firms have posted strong returns in Kazakhstan’s market in recent years.
However, investors should approach such companies with caution, recognizing the inherent volatility of commodity prices which can influence the investment’s risk profile. The dual listing, while pioneering for a Chinese company in Central Asia, raises questions about trading volumes and market reception, particularly within Kazakhstan’s evolving financial landscape.
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China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.
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