According to credit rating agency Fitch, Alibaba’s new structure will not impact credit profile. The company should enable its businesses to respond more quickly to market changes and competition. Moreover strengthen management’s accountability and increase transparency to regulatory authorities.
Fitch didn’t expect the new structure to bring about an immediate change in Alibaba’s credit profile. The effect of the company’s new structure on its competitive advantages. Ability to defend against competition and capture growth opportunities. While maintaining profitability and retaining a conservative capital structure. This will be determined by how well they plan.
On March 29, 2023, Alibaba declared its intention to establish six business groups and other investment segments, each with its own CEO and board of directors.
New governance add value to business
The new organisational and governance structure has the potential to add value to the business. Individual businesses, if well managed, may be able to react more quickly to market changes. Encourage innovation and deploy capital more efficiently. This could boost their long-term profitability. And cash generation if synergy losses from increased independence are restricted.
Alibaba may also be able to unlock value via spin-offs or IPOs. This could boost Alibaba’s credit strength if capital is freed up from businesses. That generate little cash and deployed in stronger cash-generating businesses. And used to pay down debt. However, this would give rise to pressure for some or all of such capital to be returned to shareholders. Fitch says.
Fitch do not think structural subordination of Alibaba’s current debt would become a material credit issue or that Alibaba would lose access to subsidiary cash flow when each of the six new business groups formed under the revamped organisational structure pursues independent fundraising in the future.
This is because Alibaba has no intention to reduce its stake in its core marketplace business. The Taobao Tmall Business Group. Which includes Taobao, Tmall, Taobao Deals, Taocaicai, 1688.com and other businesses. These will remain wholly owned by Alibaba. This business group will continue to generate the majority of Alibaba’s profitability and free cash flow in the medium term.
