Alibaba shares rally after a record $2.8 billion antitrust fine

Mable, Mengyuan Ge

Mon Apr 12 2021 06:00:00 GMT+0000 (Coordinated Universal Time)

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(HONG KONG) Shares in Alibaba rebounded as much as 9% as the tech giant reassured investors that the record $2.8 billion antitrust fine imposed by Chinese regulators will have little impact on its operations.

Markets are bidding the stock higher on relief that the fine put an end to the key pending risk brought by months-long probe. The fine and the Beijing-ordered overhaul measures on the company’s operations were less onerous than they had been expected.

Chinese regulators slapped the tech giant with the penalty on Saturday after finishing an anti-monopoly investigation launched last December, and concluded that the company had been abusing its dominant market position.

The company's monopolistic behaviour, namely “Choose one from two”, was to force merchants listing products exclusively on Alibaba since 2015. Merchants who sell products on other e-commerce platforms will otherwise face punishment from Alibaba, China’s State Administration for Market Regulation (SMAR) said Saturday. The practice violated China’s anti monopoly law, hindered the free flow of goods and infringed on the business interests of merchants, the SMAR said.

While Chinese regulators were still probing the giant tech companies on previous mergers and acquisitions, Alibaba executives said they were not aware of any further antitrust investigations into the company’s business. “Other than the mergers review, we’re not aware of any other antitrust issues,” said Alibaba’s vice chairman, Joe Tsai. “We are happy to get this matter behind us,” he added.

The $2.8 billion antitrust penalty, which accounted for 4% of Alibaba’s 2019 domestic annual sales, was a record for Chinese regulators. But it was still far less than the country’s maximum fine, which capped at 10% of a company’s annual sales.

Daiwa Capital Markets analyst John Choi said it was “bearable” to Alibaba. He stressed that the company had $47.6 billion in cash and cash equivalents as of the end of 2020, and it has further raised $5 billion in February. “The worst outcome of the probe did not materialize, namely divestiture of its non-ecommerce businesses, we think the penalty would be accepted by the market,” he said.

Aside from imposing the fine, the SAMR required Alibaba to carry out “thorough rectifications”, meaning that to strengthen internal compliance and protect consumer rights.

In a conference call to investors earlier today, Alibaba’s board took a positive view on the regulatory blow. “Alibaba does not expect any material impact from the antitrust crackdown in China that will push it to overhaul how it deals with merchants,” Alibaba chief Executive Daniel Zhang said that the group will “fully comply” with the regulation requirements.

The company would budget “billions of dollars” to improve merchants' experiences. “We don’t need exclusivity arrangements to retain our merchants, '' said Zhang.

Alibaba and the billionaire founder Jack Ma have been under intense scrutiny ever since last October, when Ma made a public speech criticizing China’s financial regulatory system for stifling the vitality of middle and small-sized enterprises. Beijing scuttled the $34 billion initial public offering of his financial technology company, Ant Group, in November. The once-flamboyant billionaire has since faded out from the public eyes.

Since last year, China’s antitrust regulators have been pursuing a series of investigations against tech giants with the intention of exerting greater control over the country’s fastest-growing industry.

Regulators first announced an investigation into Alibaba last December, sending the company's shares to plummet 13% in the period to last week.