UPDATE 2-Alibaba leads $400 mln funding in Masan's retail firm, first Vietnam investment

(Recasts, adds quotes, company information, comments from sources)

By Phuong Nguyen, Anshuman Daga and Kane Wu

HANOI, May 18 (Reuters) - Alibaba Group Holding Ltd is leading a $400 million funding in the retail unit of Vietnamese conglomerate Masan Group Corp, marking its first investment in one of Asia's fastest-growing economies.

A consortium comprising Alibaba and Baring Private Equity Asia, is acquiring a 5.5% stake in The CrownX, in a deal that will also strengthen Lazada, Alibaba's Southeast Asian e-commerce platform, Masan said in a statement on Tuesday.

The CrownX, Vietnam's biggest retail company, was formed through a merger of Vingroup's retail units and high-tech farms with Masan's food and beverage unit in 2019.

It had a pre-investment valuation of $6.9 billion or $93.50 a share, according to the statement.

Parent company Masan will hold 80.2% of the retail unit.

"The combination of Alibaba's online retail expertise, Lazada's e-commerce platform in Vietnam, and Masan's leading offline network will be a strong catalyst to modernise Vietnam's retail landscape," said Kenny Ho, head of investment for Southeast Asia at Alibaba Group.

As part of the transaction, VinCommerce, with its more than 130 supermarkets and 2,900 mini-marts, will be the preferred grocery retailer on Lazada's platform in Vietnam and its physical stores will become pick-up points for online orders.

Grocery accounts for 50% of Vietnam's retail market and 25% of consumer spending but online penetration is still small, Masan said.

Lazada competes with Singapore-based Internet platform Sea's Shopee, which is gaining ground across Southeast Asia.

Alibaba's investment is its largest in the region since its $1.1 billion funding in Indonesian e-commerce leader Tokopedia in December 2019, according to Refinitiv data.

Sources familiar with the matter said Alibaba is providing the majority of the funding in the latest deal that kicked off in early 2020.

Chinese web retailer JD.Com and financial sponsors also showed interest to invest in The CrownX, the sources said.

Masan also said on Tuesday that it was in advanced talks with other investors for an additional investment of between $300 million to $400 million in The CrownX and expects this to close later this year.

The sources said regional retail players and financial investors are likely to emerge as potential buyers in the next investment round.

Credit Suisse advised Masan on the deal and Deutsche Bank advised Baring Private Equity Asia. (Reporting by Phuong Nguyen in Hanoi, Anshuman Daga in Singapore and Kane Wu in Hong Kong; Editing by Christopher Cushing, Ed Davies, Martin Petty)