Alibaba's Chip Design Unit T-Head Files for Hong Kong Listing in Planned Spin-Off

In an announcement dated November 10, Alibaba said T-Head (Shanghai) Technology Co. had confidentially submitted a listing application, known as Form A1, on September 11. It filed after the exchange cleared Alibaba to go ahead with a spin-off. The shares would be sold as T-Head H shares in a global offering: part to the public in Hong Kong and part in a placing with institutional and professional investors. Alibaba said the size and structure of the offering have not been finalised.

The listing would let public investors buy directly into China's effort to build its own AI processors, at a time when US export restrictions limit Chinese companies' access to Nvidia's most advanced chips. T-Head was founded in 2018 and supplies data centre processors in China. It is central to Alibaba's push to develop its own AI and computing capabilities. In September it unveiled the Zhenwu V900 AI processor, which Alibaba says delivers three times the performance of the previous generation.

T-Head is currently wholly owned by Alibaba. The parent said it has not decided how much its stake will shrink, but it expects T-Head to remain a subsidiary after the listing.

Alibaba gave several reasons for the separation. It said investors would be able to value the retained group and the chip unit each on its own merits. It also said T-Head would gain a stronger standalone profile with customers, suppliers and partners, and would find it easier to raise equity, debt and bank credit independently.

The deal still has several hurdles to clear. It needs approval from the exchange's Listing Committee, a completed filing with the China Securities Regulatory Commission and final decisions by both Alibaba and T-Head. The company said there was "no assurance that the Proposed Spin-off will take place."

Alibaba also said the Hong Kong exchange had granted it a waiver from a rule that normally requires a parent company to give its existing shareholders an assured entitlement to shares in a spun-off business. Alibaba said complying with US securities law and Chinese restrictions on distributing T-Head's shares would be burdensome. As a result, current Alibaba investors will not be guaranteed a slice of the new stock.

T-Head is not the first chip unit of a Chinese internet group to take this route. Baidu's chip unit, Kunlunxin, confidentially filed for a Hong Kong listing in January, according to Reuters.

The disclosure did little for Alibaba's own shares, which closed 2.9% lower in Hong Kong on Tuesday and have fallen nearly 30% this year, Reuters reported.

Alibaba's announcement did not give any figures for T-Head's revenue, profitability or customers. Investors would see them for the first time in a prospectus if the application goes ahead.