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HONG KONG (BLOOMBERG) – China’s move to halt Ant Group’s massive stock debut could reduce the fintech giant’s value by as much as $ 140 billion (Singapore $ 188 billion), according to revised analyst estimates. .
New regulations that could force Ant to raise more capital to back the loans and seek national licenses to operate across the country may lower the company’s valuation by about half, according to estimates from Morningstar and other firms. Regulatory details are preliminary and may be subject to change.
If Ant’s $ 280 billion valuation before the IPO is cut in half, it would essentially mean that the company is worth less than it was two years ago when it raised money from some of the world’s largest funds, including Warburg Pincus. , Silver Lake Management and Temasek Holdings.
The lowered valuation also means potentially lower fees for investment banks like China International Capital Corp, which were counting on a windfall from the record IPO of Ant. And it gives billionaire Jack Ma’s firm less clout to carry out acquisitions. as it seeks to expand beyond its Chinese base and take the fight domestically to Tencent Holdings.
In a drastic turn of events, China last week halted the sale of Ant shares for $ 37 billion, just days before the financial technology giant went public in Shanghai and Hong Kong. The move turns upside down what had been one of China’s most important business success stories, as well as what was to be a fundamental step in the development of the nation’s fast-growing capital markets.
Iris Tan, an analyst at Morningstar, said Ant could face a 25% to 50% drop in valuation if its pre-IPO price-to-book ratio falls around the level of the world’s leading banks. That means its valuation could be lowered by about $ 140 billion. Currently, Ant’s share price is valued at 4.4 times its book value, compared to 2 times in those banks, he added.
Sanjay Jain, CFO of Singapore-based Aletheia Capital, estimates that Ant’s price-to-earnings ratio could fall to about 10 times its credit benefits, half of the previous target he had set for the company. The new price would bring the fintech giant more in line with the valuations of some of the better quality banks.
Citigroup is trading at about eight times 12-month future earnings, while Singapore’s DBS Group Holdings is trading at about 12.6 times. China Merchants Bank, one of the largest retail lenders in the country, is listed about 10 times.
A representative for Ant declined to comment.
Summoned to Beijing
Ma was summoned by China’s regulators for “supervisory interviews” days before Ant’s proposed trade debut, and authorities announced that they had belatedly discovered a number of shortcomings that, by some accounts, could require Ant to be reviewed.
Under the proposed new rules, the company would need additional capital to meet the stricter regulatory demands. Online lending companies like Ant could be required to provide at least 30 percent of the funds for loans, according to draft rules proposed by banking regulators in November. Currently, only about 2 percent of loans are on Ant’s balance sheet, with most of the funding coming from banking partners.
If those rules pass, to back up his nearly 1.8 trillion yuan of outstanding loans, Ant needs to take out 540 billion yuan of credit on his own, according to Morningstar. Depending on how small loan companies can only leverage up to 5 times, Ant, Huabei and Jiebei’s credit units could need at least 54 billion yuan, he said.
“When I come back, investors will probably see Ant a little less as a technology company than before, given that it will have fewer assets and the growth assumptions may be lower,” said Kevin Kwek, an analyst at Bernstein based in Singapore. “A discount on the previous valuations could be established given the regulatory excess.”
Alibaba Help
Ant had about 80 billion yuan in cash at the end of June. The capital requirement is also expected to have a three-year grace period.
For Ant to comply with some of the regulatory demands, one of the most realistic solutions would be for subsidiary Alibaba Group Holding to inject between 20 and 40 billion yuan, said Leon Qi, an analyst at Daiwa Capital Markets in Hong Kong.
That said, the estimates of valuations and capital requirements are also preliminary. Ant could take less damage if the final rules are less strict. Bernstein’s Kwek says that while he expects Ant to get a lower valuation, he is more optimistic that the company’s valuation will not fall to bank-rate multiples given its credit technology and powerful payment app that sits in the thousand. million phones.
“If Ant can show that he will be subject to less pressure from the national service,” or can better assess risk, he could advocate for higher multiples, said Jain of Aletheia Capital.
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