Alibaba’s Sun Art suspends Hong Kong trading, sparking divestment speculation

China’s biggest hypermarket operator suspended trading in its Hong Kong-listed shares on Friday pending an announcement on mergers and acquisitions, fueling speculation that Alibaba Group Holding may divest its controlling stake.

Alibaba took control of Sun Art Retail Group from Mulliez, a wealthy French family, for HK$28 billion ($3.6 billion) in October 2020, as the e-commerce giant sought to synergize online shopping and offline hypermarkets under a “new retail” model.

Sun Art shares last traded at $1.79, down about 78 percent from the roughly $8.1 per share price Alibaba paid at the time of its investment. Alibaba owns the South China Morning Post.

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Sun Art did not provide details about potential takeovers or mergers in its filing. The company declined to comment further. Alibaba did not immediately respond to a request for comment on Monday.

An Alibaba office building in Beijing. Photo: Reuters alt=An Alibaba office building in Beijing. Photo: Reuters>

The wait raised market speculation about a partial or full sale of Alibaba’s Sun Art stake. The hypermarket operator has attracted “preliminary interest” from private equity firms including DCP Capital and Hillhouse Investment, Bloomberg reported on Friday, citing unnamed sources.

According to analysts, a divestment by Alibaba is likely.

“There is a high chance that this will involve a change in equity, and in this case, the possibility of a change in Alibaba’s equity is relatively high,” said Kenny Ng, strategist at Everbright Securities International.

“After all, Alibaba owns the majority of (Sun Art) shares.”

A sale by Alibaba would be in line with its recent moves to shed non-performing assets and focus on core businesses amid mounting challenges, including increased competition in e-commerce and sluggish revenue growth.

“Now, the big e-commerce platforms mainly focus on lower-tier markets and operate under more competitive pressure, and it has become a general trend to shrink some non-core businesses,” Ng said.

A divestment could signal a shift in Alibaba’s strategic positioning, according to Bai Wenxi, chief economist at China Enterprise Capital Union.

Sun Art stores, which mainly include supermarket brands RT-Mart and Auchan, have pursued a new retail strategy after coming under Alibaba’s control.

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The hypermarket chain has linked its inventory with several Alibaba platforms, including on-demand delivery service Ele.me, fresh food delivery service Taoxianda and Tmall Supermarket.

An RT-Mart hypermarket in Shanghai. Photo: Bloomberg alt=An RT-Mart hypermarket in Shanghai. Photo: Bloomberg>

But past Covid-19 restrictions, as well as the “many trials and costs” involved in the integration process, have slowed development, according to Ng.

He expected things to improve after Alibaba said in August that most of its businesses, other than e-commerce and cloud computing, expected to break even in a year or two.

The Hangzhou-based e-commerce giant has continued to consolidate its retail assets since last year as the company seeks to refocus on its e-commerce and cloud businesses amid an extensive restructuring process unveiled in March 2023 .

The company looked at sales for many of its secondary operations, such as brick-and-mortar retail.

Sun Art’s revenue fell 13.3 percent from a year earlier to 72.6 billion yuan ($10.3 billion) in the financial year ended March 31, partly due to a decline in its supply chain activity and the closing of shops.

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