Alibaba to Sell China’s Sun Art to Buyout Firm at Big Discount

(Bloomberg) — Alibaba Group Holding Ltd. agreed to sell its shares in Sun Art Retail Group Ltd. to private equity firm DCP Capital, unloading another high-profile physical commerce asset at a discount to focus on its core online business.

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China’s e-commerce pioneer expects gross proceeds of up to HK$12.3 billion ($1.6 billion) from selling its more than 70% holding in the chain of Costco-like hypermart stores. That’s significantly less than the $3.6 billion Alibaba paid just to double its stake in Sun Art in 2020, and falls far short of Sun Art’s 2024 market value of about $3 billion. The Chinese retailer’s shares sank as much as 35% in early Hong Kong trading, while Alibaba slid more than 1%.

The sale accelerates Alibaba’s retreat from physical retail, a major investment initiative spearheaded years ago by previous CEO Daniel Zhang.

The company is now integrating its domestic and international ecommerce operations under the leadership of fast-rising executive Jiang Fan, while steadily selling off holdings it doesn’t consider essential. That last is considered critical enough that Alibaba is willing to swallow significant losses on its past bets, even as it raises capital to invest in areas such as AI and the cloud.

What Bloomberg Intelligence Says

Alibaba will incur about $3 billion of losses from the disposal of non-core retail assets including Sun Art, we calculate. The sale of the grocer at a 0.6x price-to-net asset valuation trails market value estimates by 30% and lags JD.com’s 3.5x multiple when it sold Yonghui Superstores last year. Alibaba’s sale proceeds are linked to Sun Art’s profits through 2028 and may therefore be pressured by Meituan’s strategic tie-up with Walmart in China.

– Catherine Lim and Trini Tan, analysts

Click here for the research.

Once a dominant player across Chinese commerce, intensifying competition from PDD Holdings Inc. and ByteDance Ltd. have forced Alibaba back to its roots as an online commerce platform.

Under new chief Eddie Wu, Alibaba is focusing investment on areas it considers more promising, from the cloud to online marketplaces. It’s also ramping up abroad, for instance by creating a joint venture to speed up a Korean expansion.

Just last month, Alibaba agreed to sell its Intime department store business to Youngor Fashion Co. for around $1 billion, incurring a loss of about 9.3 billion yuan ($1.3 billion) on its initial investment. Alibaba faces a loss of about $3 billion overall on its physical retail deals so far, Bloomberg Intelligence estimates.

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