By Tracy Qu

Shares of Sun Art Retail Group fell sharply after Alibaba Group said it would unload the Chinese hypermarket operator, less than five years after its acquisition of a controlling stake.

Sun Art stock fell as much as 35% early Thursday before paring its loss to 16.5% at 2.07 Hong Kong dollars, equivalent to 27 U.S. cents, at midday. Alibaba was 0.7% lower at HK$81.80 compared with a 1.5% drop in Hong Kong's benchmark index.

Alibaba said late Wednesday it would sell its entire stake in Sun Art to Chinese private-equity firm DCP Capital Partners for up to the equivalent of $1.58 billion. An Alibaba-affiliated company, New Retail, will also sell its 5.04% minority stake, leaving Alibaba with no remaining equity interest in Sun Art.

Alibaba's disposal, which it estimated would result in a loss equivalent to $1.8 billion, marks the end of the investment initially started in 2017. The Hangzhou-based company later invested about $3.6 billion to acquire a controlling stake in Sun Art in 2020.

The online sales giant under Chief Executive Eddie Wu has more recently been pulling back on its physical-store strategy amid lackluster Chinese consumption and rising competition with the likes of PDD Holdings, which has slowed its revenue growth. Last month, Alibaba agreed to sell department-store chain Intime for the equivalent of about $1 billion, resulting in an expected loss of more than $1 billion.

The disposal was largely expected and aligns with Alibaba's "strategies to focus on core business and return value to shareholders," Jefferies analysts wrote in a research note. They kept a buy rating on Alibaba with a HK$138 price target.

Sun Art ran 466 hypermarkets, 30 superstores and six membership stores in China as of Sept. 30.

Write to Tracy Qu at tracy.qu@wsj.com

(END) Dow Jones Newswires

January 01, 2025 23:56 ET (04:56 GMT)

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