(Bloomberg) -- The planned initial public offering of Alibaba Group Holding Ltd.’s logistics arm will be a key test of demand in Hong Kong’s languishing deals market.

Cainiao Smart Logistics Network Ltd. on Tuesday became the first Alibaba unit to file for an IPO since the tech giant split into six entities in March. The share sale is expected to raise at least $1 billion, Bloomberg News reported earlier, which would make it the largest in Hong Kong since battery maker CALB Co.’s debut in October 2022.

The city has endured an extended slowdown in IPOs since President Xi Jinping unleashed a series of crackdowns on private enterprise in 2021, with plunging share prices further acting as a deterrent. Companies have raised just $2.9 billion so far in 2023, on track for the least for a full year since 1999 when the city was still reeling from the Asian financial crisis.

Cainiao’s offering would be “the first and long-waited test” of Hong Kong market sentiment after Beijing tightened its grip on Chinese IPOs, said Gary Ng, a senior economist for Natixis in Hong Kong. “The deal can boost market confidence from an extremely low level, but the magnitude will depend on valuation.”

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The Hang Seng Index is down for a fourth straight year and trades at less than the value of net assets amid persistent selling by foreign investors. The performance of CALB doesn’t bode well for other IPOs. Its shares trade almost 50% below their debut price.

“Policy risk has been a major factor holding back investment into China-related assets, and the valuation will show how much investors price the new normal,” Ng said. “If the outcome is good, more firms and investors will follow.”  

It may be a while yet before Cainiao lists in Hong Kong. Its application still requires approval from the China Securities Regulatory Commission and the Hong Kong stock exchange. Regulators maintain tight control over financial markets and show little hesitation about managing market conditions, such as when the CSRC slowed the pace of IPOs in Shanghai and Shenzhen earlier this year to support share prices.

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