(Bloomberg) — The cloud division of Alibaba Group Holding Ltd. is considering a private round to raise money from Chinese state-owned companies ahead of the company’s market debut in Hong Kong, people with knowledge of the matter said.
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The tech giant is working with advisors on a potential fundraiser for the Cloud Intelligence Unit that people say could raise about 10 billion to 20 billion yuan ($1.4 billion to $2.8 billion). Potential investors include state-backed telecommunications companies, they said.
Alibaba planned to spin off the division by paying stock dividend to shareholders within 12 months, the company announced in May. Raising funds from state-owned companies could increase the chances of winning new cloud contracts from the government, which could increase the use of Alibaba’s related services, Bloomberg Intelligence analysts Catherine Lim and Marvin Lo wrote in a note Tuesday. With the potential deal, an IPO could value the cloud unit at more than $55 billion, she added.
The deliberations are preliminary and details of the funding, such as size and timing, could change, the people said, asking not to be identified because the information is private. An Alibaba representative did not respond to an email request for comment. Spokesmen for China’s three main state-owned telecom companies did not respond to requests for comment.
Shares of Alibaba fell as much as 1.2% in Hong Kong on Tuesday.
Alibaba hit like a bombshell when it announced that the e-commerce leader would split into six largely independent parts, with companies like logistics and smart retail ready for IPOs. An initial public offering for Cloud Intelligence Group would not generate new cash by selling shares to the public. But selling shares to China’s so-called national team ahead of the spin-off could allay Beijing’s security concerns surrounding the company.
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The cloud business, a thriving business and China’s closest analog to Amazon Web Services, drew the ire of regulators in 2021 when it shared its discovery of a major software flaw with a global developer community before notifying authorities. A year later, it was under investigation for its role in China’s largest known cybersecurity data breach. In recent years, the cloud division began to cede market share to competitors, including Huawei Technologies Co. and the state-owned China Mobile Ltd.
Founded in 2009, the company known as Alibaba Cloud provides data processing and storage services to thousands of businesses, developers and government organizations in more than 200 countries and regions, according to its website. It contributed $11.2 billion in revenue to Alibaba in the twelve months ended March 31, excluding payments from other companies within the group.
In July, at a conference, Alibaba Cloud introduced the great language model Tongyi Wanxiang, whose name means 10,000 images. The generative AI model can create a variety of images ranging from animations and sketches to 3D cartoons, a statement said.
–With help from Jane Zhang and Shirley Zhao.
(Adds comments from Bloomberg Intelligence analysts in the third paragraph and Alibaba’s share price changes in the fifth paragraph.)
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