Almost three years ago, Chinese regulators torpedoed what would have been a record initial public offering (IPO) by financial technology giant Ant Group, sending shock waves across global capital markets. They imposed new rules that curbed the power of a business with operations that spanned consumer lending, wealth management and online payments.
The crackdown appeared to be nearing an end in July, when the authorities issued Ant with a fine of almost US$1 billion ($1.3 billion). With its founder Jack Ma, China’s most-famous entrepreneur, now ceding control, investors are wondering if Ant will one day get another chance at going public.
How did we get here?
In November 2020, regulators swooped in at the last minute to block the IPO and later the government ordered the company to overhaul its sprawling operations. The authorities had decided that China’s tech giants — sprawling businesses that were able to corral data from hundreds of millions of users — had become too powerful and it was time for the government to assert control. Part of that involved curbing the push of technology firms into finance.
Ma may have helped to precipitate the crackdown with comments made ahead of the cancelled IPO in which he critiqued China’s approach to regulation. The crackdown has ended, partly because the government is anxious to revive investments and stimulate a sluggish economy.
What would need to happen for Ant to go public?
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The most important step is to become more like a regular bank by setting up a financial holding company. It is now waiting for the green light from the government to hand in its application for an IPO to the central bank. Ant would then need a sign-off from the China Securities Regulatory Commission (CSRC) to list either in Shanghai or Hong Kong. (The scotched 2020 plan was to list in both cities simultaneously.)
While not officially part of the process, in reality it also would need the blessing of top Chinese leaders and several government agencies. That includes a national financial supervision and management bureau set up recently to supervise financial holding companies.
How does Ma ceding control affect things?
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Ant said in January that Ma was giving up control and would end up with about 6.2% of the company’s voting rights. That could prolong Ant’s listing timeline.
Companies cannot go public domestically on the country’s so-called A-share market if they have had a change in control in the past three years, or in the past two years if listing on Shanghai’s Star market, which is geared towards new technology companies. For Hong Kong’s stock exchange, the waiting period is one year.
This suggests that if Ant were to start moving towards an IPO as soon as next year, it would prioritise listing in Hong Kong. How have regulators changed their tune? The Communist Party and the government issued a rare joint statement in July with 31 measures to improve conditions for businesses, including pledging to treat private companies the same as state-owned enterprises.
The CSRC has said it supports eligible platform companies going public in China and overseas. Still, any return to the more dynamic, free-wheeling tech environment that existed before 2020 appears unlikely.
What’s Ant been doing?
Chairman Eric Jing has said the company would eventually go public, but said last year there was no plan to initiate an IPO for the time being. Ant reiterated that position in announcing Ma’s ceding of control in January, saying it was focused on fixing and optimising the business. Here’s what it has done so far to satisfy the government: In April 2021, the central bank told Ant to open its payments app to competitors and sever “improper links” that steered users towards more lucrative services such as lending. Ant set up a separate consumer finance affiliate that went into operation that year, with new rules limiting its ability to lend. Consumer loans jointly made with banks — previously a major engine of growth — were split from its Jiebei and Huabei brands.
Ant still holds a 50% stake in the consumer-lending business that has capacity to issue about 400 billion to 500 billion yuan ($74 billion to $92.8 billion), based on Bloomberg calculations. Assets under management at Ant’s money-market fund Yu’ebao — once the world’s largest — dropped to 725 billion yuan as of the end of June, compared with a peak of 1.58 trillion yuan in the last quarter of 2017.
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What is Ant worth?
While Ant was valued at US$280 billion ahead of the IPO, the myriad regulations imposed on the fintech business mean it is now more “fin” than “tech,” and is therefore worth far less. (Expectations of growth and profitability are generally lower for banks than for technology companies.) Ant offered to buy shares back from investors in July at a valuation of about 567.1 billion yuan, or US$79 billion.
What would be included in a listed version of Ant?
Ant plans to use the financial holding company to go public and will need to fold its financial operations into that entity, which will be regulated more like a bank. Among them are Ant’s payment business Alipay, which in 2020 had 711 million active users — mostly in China — who used it to buy everything from a quick coffee to real estate, generating US$17 trillion in payments in the space of a year. It also could include Ant’s wealth management and credit scoring business.
But it is unclear what the final structure will be and if there needs to be a further separation between Ant’s payments operation and other units. Ant has been told to build firewalls to cut direct traffic between Alipay and its other services like wealth management, and to return to its roots as a provider of payment services.
Some units that are not fundamental to its financial business in China may be left out of the IPO, people familiar with the matter have said. Those could include its overseas operations, technology units such as blockchain and database management. Its international functions include a transaction network that facilitates cross-border payments among a number of digital wallets in a range of countries.
What happened to Jack Ma?
The billionaire, once the richest man in China and one of its most prominent entrepreneurs, has kept a low profile since the government torpedoed the IPO. After a long period spent overseas, Ma returned to China in March. He also took on a visiting professor role at The University of Tokyo and an honorary professor position at The University of Hong Kong. A slump in Chinese tech stocks has pummelled his personal wealth, but the 58-year-old was still worth about US$31 billion as of July 2023, according to the Bloomberg Billionaires Index.
Ma has told the board of Alibaba Group Holding, his internet business, that he intends to reduce his economic interest in Ant “over time” to no more than 8.8%, according to a company filing. Many of his peers have also relinquished their formal corporate roles and increased donations to charity to align with President Xi Jinping’s vision of achieving “common prosperity”. — Bloomberg Quicktake E
