Investors cheered a major revamp of Alibaba Group as a sign of Beijing's crackdown on the corporate sector was nearing an end, sending shares of the Jack Ma-founded company and its peers soaring on Wednesday.

Alibaba said on Tuesday it was planning to split into six units and explore fundraisings or listings for most of them, in the biggest restructuring of the technology conglomerate in its 24-year history. The group's Hong Kong-listed shares jumped as much as 16.3%, tracking a 14.3% rally in its U.S.-listed shares overnight, leading the benchmark Hang Seng Index and broader markets in the region higher.

The move represented a light at the end of the tunnel for many investors who had seen a wave of regulatory blitzes as a major cloud hanging over China's private sector. "We think this is likely a sign that we are moving closer to the end of the regulatory scrutiny on BABA and we would expect that the company moves back into the good graces of the regulators and policymakers after this," said Jon Withaar, head of Asia special situations at Pictet Asset Management.

The company said it will hold a conference call on Thursday to discuss its plan to split. China's wide regulatory crackdown over the last couple of years on its marquee domestic companies, mainly from the internet, private education and property sectors, had wiped off billions in market values and weighed on investor sentiment. Alibaba said on Tuesday it would split into six units - Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group and Digital Media and Entertainment Group.

The group had been planning to spin off individual business units for a long time, according to two sources familiar with the company's thinking. "There was a consensus within and outside Alibaba that the stock was trading at a major discount to the inherent value of the businesses," said one of the people, adding that the company had become “too bloated”.

The person said there would be five initial public offerings from the units, while Taobao and Tmall, Alibaba's core revenue drivers, would remain with the current listed entity. Hong Kong is the most likely venue for these IPOs, said the person, and a separate source familiar with Chinese tech companies' capital markets transactions. Alibaba did not immediately respond to a request for comment.

In Japan, SoftBank Group Corp, which has a 13.7% stake in Alibaba, shot up 6%. SoftBank did not respond to a request for comment. Alibaba itself would re-organise into a holding company structure, with Daniel Zhang retaining his position as group CEO, and the six sub-divisions each with their own CEOs and boards. Zhang will also head the cloud-focused unit.

Pain Ending?

Analysts at Bank of America on Tuesday described Alibaba's restructuring as “an important experiment”, which would test whether or not China's biggest companies could meet Beijing's demand to “contribute to society.” Alibaba was a common target during the crackdown period. It faced scrutiny for engaging in monopolistic behaviour in the e-commerce space, as well as its data security practices in its cloud business and labour practices for its delivery units.

In what many observers viewed as symbolic of the regulatory chill, Ma, its founder, left China in late 2021 and was seen travelling to a number of different countries. He was spotted on Monday in Hangzhou, just one day before Alibaba announced the restructuring. Zhang Zhihua, chief investment officer at Beijing Yunyi Asset Management, said that on top of Ma's return and the restructuring, new leadership and local governments have recently softened their stance towards China's private sector, giving investors confidence.

Shares in JD.com Inc, Alibaba's longtime e-commerce rival, jumped as much as 7.8% on Wednesday. Tencent Holdings Ltd, China's largest gaming company, saw shares rise as much as 5.1%. Alibaba's split may pave the way for other Chinese tech giants to undergo similar restructuring, CMC Markets analyst Tina Teng said.

"This helps break down the monopolistic power of these conglomerates, which complies with the Chinese government's regulatory overhaul over antitrust issues," she said. Brian Tycangco, who tracks China's tech sector at Stansberry Research, said that in addition to enabling higher valuations, the restructuring better protects individual divisions from future government regulation. "Any new regulations will likely not affect the whole company now - just the particular division that that regulation covers,” Tycangco told Reuters.