Alibaba in $312m deal to leverage SingPost network

[SINGAPORE] The mailman has seemed bent on delivering good news of late.

A week after announcing robust full-year results, Singapore Post (SingPost) yesterday announced that China's e-commerce giant Alibaba will buy a 10.35 per cent stake in it for $312.5 million.

Singapore's national postal service provider has also signed a deal with Alibaba to leverage its enormous e-commerce volumes and know-how.

In what is Alibaba's first strategic pact in the Asia-Pacific, the Chinese Internet juggernaut will get to tap SingPost's extensive last-mile delivery network in the region, to compete against its giant American rivals, Amazon and eBay.

The Chinese giant led by charismatic billionaire Jack Ma, which is gearing up for an initial public offering in the US, will emerge as the second largest shareholder in SingPost after Singapore Telecommunications (SingTel), which now owns 25 per cent.

SingPost group chief executive Wolfgang Baier said in a joint SingPost-Alibaba statement: "The step-change collaboration will enable SingPost to grow its e-commerce logistics business much faster and strengthen its regional revenue stream."

He told The Business Times separately: "E-commerce is the lifeline of the future for SingPost, as it grapples with a declining mail business."

In fiscal 2014, e-commerce and related businesses turned in 26 per cent of the group's revenue; just over half came from the mail business.

Daniel Zhang, Alibaba's chief operating officer said in the statement: "We are excited to collaborate with SingPost and leverage its strong delivery networks. We hope to create concrete benefits for our overseas buyers and sellers by enhancing the user experience and providing greater access to a suite of international e-commerce logistics solutions."

The e-commerce space in the Asia-Pacific is burgeoning; sales are expected to hit US$1 trillion in six years, said eMarketer.

The deal with one of the world's largest online and mobile commerce firms, put together by DBS Bank, is a leap for SingPost and fits in snugly and some with its next stage of growth - which is to build up its e-commerce and logistics business and offset waning growth in the sunset postal business.

OCBC investment research analyst Low Pei Han said that the deal gives priority to SingPost's logistics services when, for example, Alibaba needs to ship goods to certain parts of South-east Asia.

"By gaining access to more of Alibaba's volumes, SingPost will be able to obtain a scale effect and bring down cost per unit of goods handled," he added.

Alibaba will acquire 220 million new and existing shares in SingPost - 30 million existing shares held in treasury and 190.096 million new shares at $1.42 apiece; the price is an 8.3 per cent discount to the volume-weighted average price of SingPost shares on Tuesday, prior to the deal announcement.

Trading in SingPost shares were halted yesterday and will resume trading today.

The counter has risen substantially in recent weeks, hitting a high of $1.56 a week ago; it has since come off a little to close at $1.55, its last traded price on Tuesday.

Alibaba will nominate one member to join the SingPost board.

CIMB research analyst Jessalynn Chen said: "Having Alibaba as a major investor definitely provides (SingPost) with more backing and instils investor confidence."

Shareholders will give their nod for the issuance of SingPost shares at the annual general meeting on June 28; the deal is subject to regulatory approvals, including those from the Monetary Authority of Singapore and the Infocomm Development Authority of Singapore.

SingPost said that some $308 million of the net proceeds from the share issuance, after deducting $4.5 million in estimated expenses, will be used for e-commerce-related investments, mergers and acquisitions in South-east Asia, property development and general working capital.

Ms Chen, pointing out that its current net cash position of $170 million has limited the firm to smaller investments, said: "The new source of funding will open the door to new investment opportunities in e-commerce logistics regionally, especially larger-scale investments that were not possible for SingPost to do on its own due to financial constraints."