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Alibaba Group Holding office building in Shanghai, China.
Qilai Shen / Bloomberg
Chinese regulators put
Participation of the Alibaba group
(ticker: BABA) and other large technology companies warned last month that they would be under control of their business practices.
On Thursday, China’s top market regulator said it was studying Alibaba’s use of exclusivity agreements with merchants selling on its e-commerce platform, preventing them from being sold through rivals such as
JD.com
(JD).
Investors reacted strongly to the news, causing Alibaba to fall to 17.5% in US trade. It’s the largest decline in shares since it went public in 2014. “We think it’s a bit of an overreaction,” said Raymond James analyst Aaron Kessler De Barron.
Alibaba acknowledged the State Administration’s warning for market regulation, which said China is investigating under antitrust law. Alibaba said it would cooperate with the investigation and that its business operations “remain normal.”
Beijing also said it would meet with Alibaba’s unit, Ant Group, for financial regulation. Last month, Ant postponed its expected initial public offering. In his own statement, Ant said that “we will seriously study and strictly comply with all regulatory requirements and make every effort to comply with all related work.”
The strong sell-off could surprise investors. As in the U.S., Chinese regulators have been closely examining technology giant companies like Alibaba for concern about their power rise. From Google
Alphabet
(GOOGL) i
Facebook
(FB) face multiple lawsuits over their competitive practices.
Last month, China released a draft antitrust rules designed to curb popular digital sites so that they would not use their position to push merchants to establish exclusivity agreements and other monopolistic practices.
Kessler, of Raymond James, said the tricky part would be quantifying success in revenue, if any. And Chinese regulators are likely to pursue other companies, he said.
Analysts estimate that Alibaba’s sales in fiscal year 2021, which will end in March, will reach $ 106 billion, according to FactSet. That would be a 49% increase over fiscal year 2020. And Kessler said De Barron that e-commerce sales are growing at a rate of 20% for the industry, calculating 24% growth for Alibaba in fiscal year 2021. Alibaba’s practices “don’t seem to hurt competitors,” he said.
Alibaba owns a third of fintech firm Ant, which grossed $ 34 billion on its IPO last month, but canceled its last-minute debut after controlling shareholder Jack Ma was summoned to a meeting with regulators.
Ant executives are expected to meet with regulators in the coming days. The People’s Bank of China issued a statement saying the meeting should “guide the Ant group to implement financial supervision, fair competition and protect the legitimate rights and interests of consumers,” Reuters reported in China.
In a note Thursday, Kessler said “the timing of the IPO is highly uncertain.” Ant could be “forced to make concessions to the Chinese government as well as tighten regulatory control.”
Write to Liz Moyer to [email protected]