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Will Alibaba Make a Massive Investment in Coupang?
Korean e-Commerce Market
Will Alibaba Make a Massive Investment in Coupang?
  • By Yoon Yung Sil
  • August 2, 2017, 01:15
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Alibaba’s latest move to make an aggressive investment in promising venture companies in Asia in order to beat U.S.-based Amazon supports the rumor about its possible investment in Coupang.
Alibaba’s latest move to make an aggressive investment in promising venture companies in Asia in order to beat U.S.-based Amazon supports the rumor about its possible investment in Coupang.

 

There is speculation in the e-commerce industry that China's largest e-commerce firm Alibaba can be a relief pitcher for Coupang which has a cumulative deficit of 1 trillion won (US$890.47 million) for the past two years alone. Alibaba is expected to invest more than 1 trillion won (US$890.47 million) in the South Korean e-commerce platform. When Alibaba actually makes the massive investment, Coupang, which is in crisis due to a succession of losses, will get wings, and the triangle formulation of South Korea, China and Japan, which leads to SoftBank, Alibaba and Coupang, will completely change the domestic distribution industry landscape.

A senior official from the e-commerce industry said, “The rumor that Alibaba will make an investment in Coupang is emerging as a hot issue in the industry and we believe that it is highly likely to happen. When the investment becomes a reality, it is expected to bring about a huge impact on the domestic e-commerce market.”

According to distribution and investment banking industry sources on August 1, Alibaba is considering a plan to make a massive investment of more than 1 trillion won (US$890.47 million) in Coupang through its affiliate Alipay. As Coupang got into a crisis owing to continuous losses, CEO Kim Beom-seok is currently out to attract investment in the United States. Although Coupang’s sales are increasing, its operating losses for the past two years surpassed 1 trillion won (US$890.47 million), caused by logistics investment. Goldman Sachs is the investment attraction manager.

Under the current circumstances, the rumor about Alibaba’s investment in Coupang is gradually accepted as truth. This is because Jung Hyung-kwon, who served as financial executive at Coupang from 2015 to the end of 2016 and was appointed as Alipay Korea CEO in February this year, and his elder brother Jung Hyung-jin, CEO at Goldman Sachs Korea, are seeking to attract investment for Coupang.

Goldman Sachs Korea CEO Jung Hyung-jin earned about 40 billion won (US$35.62 million) after consulting SoftBank’s US$1 billion (1.1 trillion won) investment in Coupang in 2015 as well. It is the conceived opinion in the industry that Goldman Sachs served as a medium when Ant Financial, a financial affiliate of Alibaba which runs the Chinese payment service Alipay, invested US$200 million (220 billion won) in Kakao Pay in February.

An industry official, who asked not to be named, said, “There has been a rumor in the e-commerce industry from June that Alibaba will make a larger investment in Coupang than SoftBank Chairman Son Jeong-ui did. Recently, there is also a rumor that the investment will be made soon.”

In this regard, an official from Coupang said, “We can’t confirm anything about the investment.”

Given the current situations of Coupang and Alibaba, industry watchers believe that Alibaba is highly likely to make the massive investment. This is largely due to the fact that Alibaba is the perfect partner from the perspective of Chairman Son in order to help Coupang, which is now in crisis after he made the investment, make a leap. Chairman Son holds a major share in Alibaba at 28 percent. Moreover, he is presumed to be the second largest shareholder of Coupang LLC, a U.S.-headquartered parent company of Coupang, with a 20 percent stake by investing US$1 billion (1.12 trillion won) in June 2015. Once Alibaba makes the investment, the link of SoftBank, Alibaba and Coupang based on Chairman Son will be created.

Alibaba’s latest move to make an aggressive investment in promising venture companies in Asia in order to beat U.S.-based Amazon supports the rumor about its possible investment in Coupang. Alibaba acquired a 51 percent stake in Lazada, a Southeast Asian online retailer, at US$1 billion (1.12 trillion won) in April last year and increased its share in the company to 83 percent by making an additional US$1 billion (1.12 trillion won) investment in June. In addition, Alibaba has recently decided to jointly invest US$1.5 billion (1.68 trillion won) in Grab, a Southeast Asian version of Uber, with SoftBank.

On July 19, Alibaba completed a large five-story logistics center with a total floor area of 35,392 square meters in Oryu-dong, Incheon, through ICB, an official partner in South Korea of Cainiao, a logistics subsidiary of Alibaba, pushing into the South Korean market in earnest. This is why some say that the Chinese company is seeking to indirectly enter the domestic market through the investment in Coupang as it is hard to directly enter the market whose online logistics services have already entered a mature stage.

Some also say that Alibaba will make a 2 trillion won (US$1.78 billion) investment – 1 trillion won (US$890.47 million) in Coupang and the remaining 1 trillion won (US$890.47 million) in the acquisition of SK Planet's online e-commerce platform 11st which is rumored to be sold. Currently, SK Planet is discussing an investment plan with Lotte and Shinsegae. However, the discussion makes slow progress as the price of 11st reaches 3 trillion won (US$2.67 billion).