Alibaba Is Teaming Up With a Kremlin-Backed Fund to Expand in Russia

September 11, 2018, 10:39 AM UTC

Alibaba Group Holding is setting up a $2 billion joint venture with a Kremlin-backed fund and billionaire Alisher Usmanov’s Group to grow its e-commerce business in Russia.

Asia’s most valuable company signed an accord Tuesday with the Russian Direct Investment Fund and to establish AliExpress Russia, which the local investors will collectively control. Alibaba will fold the domestic operations of its online marketplaces Tmall and AliExpress into the venture, while Usmanov’s MegaFon PJSC will sell its 10% stake in — worth roughly $486 million at Monday’s close — to Alibaba in return for 24% of the venture. That deal values the new outfit at roughly $2 billion.

Alibaba (BABA), which is steadily expanding its reach beyond China as part of a global expansion, will access’s large audience through two of the country’s most popular social networks. The Russian company will prove a key ally in a major market: it recently invested in online food-delivery and ride-hailing and rolled out Pandao, a mobile platform for selling Chinese goods.

“A big part of what we’ve been able to develop so far in Russia has been our cross-border business,” Alibaba President Mike Evans told reporters. “But the future, which will require the presence of our partners at this table, will involve building a much bigger local business.”

Pandao will also get folded into the Alibaba venture. The Russian Direct Investment Fund will add an unspecified amount of funding in return for a 13% stake, while holds the remaining 15%.

The parties inked the deal at a Vladivostok economic forum attended by President Vladimir Putin and Alibaba Chairman Jack Ma. The Chinese company had been negotiating a similar deal with Sberbank PJSC, Russia’s largest bank, but abandoned talks after the lender partnered with Yandex instead. Alibaba recently rolled out Tmall for Russia after winning consumers through AliExpress, its international marketplace.

Ma, who started in 1999 as a business-to-business marketplace with 17 co-founders, this week announced plans to step back from the Chinese e-commerce titan. His company, which is pushing into overseas markets from Southeast Asia to Russia, last year saw daily package deliveries reach 55 million.

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