(AsianFin)—Alibaba Group Holding Ltd. has decided to cance the highly anticipated initial public offering (IPO) for its Cainiao logistics arm in Hong Kong, putting aside plans that could have raised over $1 billion.

As cross-border e-commerce competition gets stiff, the role of logistics is increasingly important.  

Given the strategic significance of Cainiao to Alibaba in building a global logistics network, it is time for Alibaba to increase investments in Cainiao, said Joseph Tsai, the Chairman of Alibaba, adding that Cainiao will continue to invest in infrastructure and expand its global logistics network in order to become a global leader in logistics. 

The decision comes as the Chinese e-commerce giant, which holds a 64% stake in Cainiao, announced its intention to acquire all remaining shares held by investors and employees for $3.75 billion.

Regarding the withdrawal of Cainiao's IPO application, Alibaba hastily convened a conference call. At the meeting, Alibaba stated that the tender offer price reflected a valuation of Cainiao at $10.3 billion. After confirming that this price could reflect the fair value, Alibaba's board of directors approved the tender offer.

Citing unfavorable market conditions, Alibaba opted to postpone the transaction, according to sources familiar with the matter. The company’s interest in the deal waned this year amidst market downturns. However, there remains a possibility for Alibaba to revive the IPO if market conditions improve, the sources added.

This marks the second time Alibaba has called off a high-profile IPO for one of its key businesses. In 2023, the company surprised the market by canceling the listing of its $11 billion cloud unit. Cainiao Smart Logistics Network Ltd., responsible for handling a significant portion of Alibaba’s daily e-commerce parcel volume, was viewed as one of its fastest-growing ventures.

Alibaba had previously deferred plans to debut its Freshippo grocery chain, aligning with broader uncertainty in public markets amidst challenges such as China's property crisis and weakening consumer confidence.

“Given the strategic importance of Cainiao to Alibaba and the significant long-term opportunity we see in building out a global logistics network, we believe this is an appropriate time to double down on Alibaba’s investment in Cainiao,” Alibaba chairman Joseph Tsai said in a blogpost Tuesday.

The decision reflects Alibaba's ongoing efforts to address fundamental questions about its market dominance and adapt to shifting consumer preferences. Despite posting a lower-than-expected 5% increase in revenue for the December quarter, Alibaba remains focused on its restructuring efforts to rejuvenate the company and position itself for future growth.

According to sources close to Cainiao, the market's expectations are not optimistic based on the stock performance of peer logistics companies. Forcing an IPO may yield poor results. Moreover, Cainiao's future focus on the international logistics market may hold more value in its future. However, tapping into international markets also implies more investment.

Last year, Instacart, a grocery delivery company, was listed on the Nasdaq. Instacart's IPO target price was set at $26-28 per share, corresponding to a total valuation of approximately $9.3 billion, a decrease of $29.7 billion from its pre-IPO valuation of $39 billion, a decrease of 76%. It fell below the IPO price on the day of listing, dropping nearly 20% from the offering price.

Returning to the domestic A-share market, SF Holdings, whose market value rose to over 290 billion yuan at the beginning of 2023, has now fallen to less than 200 billion yuan.

Cainiao, which filed for its IPO approximately six months ago in September, was valued at around $10.3 billion in the buyout of minority shareholders.