Alibaba stated in May that it intended to spin off the division by giving stock dividends to shareholders within a year. Credit: Karolis Kavolelis/Shutterstock.

Alibaba Group’s cloud unit is considering a private funding round to raise fresh capital from Chinese government-backed entities, reported Bloomberg citing sources.

The Chinese technology major and its advisers working on a fundraising round for the Cloud Intelligence Unit.

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The round could fetch between 10bn yuan ($1.4bn) and 20bn yuan ($2.8bn) for the cloud business before its listing on the Hong Kong stock exchange, the sources said.

State-backed telecommunications corporations are among the potential investors, they added.

Alibaba plans to spin off the cloud division by giving stock dividends to shareholders within a year.

Raising money from state-owned companies may improve the prospects of landing new government cloud contracts and hence enhance the use of Alibaba’s associated services, the report said.

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A listing could value the cloud unit at more than $55bn with the potential investment, it added.

The sources added that the talks are at an early stage and the specifics of the deal such as the size of the investment and the timing could still change.

An email seeking a response from an Alibaba representative did not elicit a response.

Requests for comment from the three largest state-owned telecom companies in China also went unanswered.

In May this year, Alibaba launched a major corporate re-organisation to split its operations into six separate companies.

Alongside Cloud Intelligence Group, the other units will be known as Local Services Group, Global Digital Business Group, Digital Media and Entertainment Group, Taobao Small Business Group and Cainiao Smart Logistics.