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HONG KONG – Ant Group, a subsidiary of Alibaba and the world’s most valuable fintech, is putting the finishing touches on what is shaping up to be the world’s largest initial public offering.
Aiming for a valuation of more than $ 250 billion, the company expects to raise $ 35 billion in a dual listing split evenly between Hong Kong and Shanghai, according to people familiar with the matter. That would crush Saudi Aramco’s $ 29.4 billion offer last year.
Started in 2004 as Alibaba’s online payment service, Alipay, the company has now grown into a virtual financial services trading center for everything from loans to mutual funds, insurance policies, and travel reservations.
Here are five things to know about Ant, the listing, and the challenges that await the Hangzhou-based company.
Who is the ‘Alibaba of Chinese finance’?
Ant Group, known until this year as Ant Financial, was established in its current form in 2014, having originally been established as the payment unit of Alibaba Group Holding. Ant made a name for himself with his hugely popular mobile wallet, Alipay, which has over 1 billion users and a 55% share of China’s $ 29 trillion digital payments market.
Today, Ant is much more than just a payment facilitator. It is the largest online consumer loan provider in China and its platform generates billions of yuan in sales of investment and insurance products.
The change has been profitable: Ant’s digital fintech platform accounted for 63.4% of its revenue for the six months through June, up from 44.3% for all of 2017, according to the company’s preliminary prospectus. Its net profit margin was 30.2%, double the maximum rate recorded in 2019, on total earnings of 21.92 billion yuan ($ 3.17 billion).
The decision to focus on financial products was driven in part by a desire to win back customers from Tencent Holding, whose WeChat app has expanded from a messaging service to an online platform for services of all kinds, including mobile payments.
Roughly 90% of Alipay’s 1 billion users now access the app for more than just payments. The share that pays for at least five financial services on Alipay reached 40% in 2019, up from 10% in 2017, according to Bernstein Research.
Who controls Ant?
Alibaba founder Jack Ma controls 50.5% of Ant through his general partner control of two investment companies: Hangzhou Junhan and Hangzhou Junao.
Although he does not have an official role in the company, Ma has veto power over any important decision he makes.
Alibaba, through its subsidiaries Hangzhou Alibaba and Taobao Holding, owns 33% of Ant. It acquired the shares last year in exchange for ending a profit-sharing agreement reached when Ant parted ways with Alibaba in 2011. According to That deal, Ant was handing over 37.5% of his pre-tax profits to the Chinese e-commerce kingpin.
Other shareholders include Singapore’s Temasek Holdings, GIC, Warburg Pincus, China Investment Corp. and China’s national social security fund, according to information portal Crunchbase. The company has raised nearly $ 20 billion in three rounds of equity financing since 2015. In its latest round in 2018, the company raised $ 14 billion with a valuation of approximately $ 150 billion.
Who are your competitors?
The list is long. At the top are Shenzhen-based entertainment heavyweight Tencent Holdings, Chinese insurance conglomerate Ping An, and the country’s second-largest e-commerce operator JD.com, as well as high-end fintech startups. I fly like Yeepay.
Competition is fierce in China’s digital payments market, which recorded more than 53.4 trillion yuan ($ 7.64 trillion) in transactions in the first quarter of this year, according to market research firm Analysys.
While Ant remains the market leader, it has been steadily losing ground, mainly to Tencent, whose market share has gone from 23% to 38.9% in recent years.
In other areas, Ant is comfortably ahead. In wealth management, loans and insurance, Ant is at least twice the size of Tencent, according to calculations by Bernstein analyst David Dai.
The company in its prospectus also warned of the risks of China’s push to launch a digital yuan.
“We do not have enough visibility as to the impact of the DC / EP on the payment behavior of consumers and the payments industry,” Ant said, referring to the digital currency electronic payment project.
In August, the Commerce Ministry said that the DC / EP test will be expanded to the country’s three main urban groups, focusing on Beijing, Shanghai and the southern cities of Guangzhou, Shenzhen and Hong Kong.
How long before the IPO?
The wait is almost over, according to several people familiar with the preparations.
Subject to a green light from the Hong Kong Stock Exchange, pre-trading could begin next week, with the subscription offering opening in mid-October and a listing before the end of the month. The Shanghai Nasdaq-style STAR market granted approval in mid-September for the IPO to continue one month after the company submitted its application.
While the Hong Kong stock exchange is still going through Ant’s paperwork, the company is hopeful that it can meet with the listing committee in a few days, sources say.
For Hong Kong IPOs of more than $ 1 billion this year, the average time between filing the application and opening the subscriptions has been four months, according to data from the stock exchange. In 2019, it typically took at least three months to receive orders. Ant submitted his application on August 25.
What are the regulatory risks that lie ahead?
Ant has been on the receiving end of a barrage of rules aimed at reducing risk to China’s $ 40 trillion financial sector.
The Chinese authorities have announced that non-financial companies with businesses in at least two financial sectors, as well as those considered financial holding companies, will have to apply for a license by next November. Those who are denied a license must sell or relinquish control of their financial operations.
Authorities also plan to put a cap on the interest rates companies can charge for fast-paced consumer loans following a ruling by the country’s Supreme People’s Court in August. When the measure was announced, the court exempted licensed financial institutions, but did not specify whether fintech companies like Ant would be affected.
Ant’s unsecured loans have annual rates of around 15%, and its 20 million small business borrowers pay on average around 11%, more than double the rate charged by traditional banks, although the latter tend to avoid grant loans to small private companies. .
However, another new rule limits the use of asset-backed securities to finance certain consumer loans. Under this rule, securitization financing is capped at four times the net assets of a finance company. Ant’s multiple is now 4.7 times, which means the company could be forced to switch to more expensive sources of capital, according to analysts.
Ant plans to absorb some of the impact of the new rules by applying for a financial holding license through its Zhejiang Financial Credit Network Technology unit, analysts said. These units will house some financial businesses and cushion the capital and financing impact of the new requirements.
Ant also faces the challenges of tensions between Beijing and Washington. After the Trump administration took steps to restrict transactions with Chinese tech companies, including Huawei Technologies, ByteDance, Tencent Holdings and Hikvision, Ant warned in its prospectus that it could also become a target and lose access to technologies or the market. American.
Bloomberg reported Thursday that US officials were exploring ways to restrict Ant, as well as Tencent, over concerns that its payment systems are a threat to national security.
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