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Jack Ma is giving up control of Ant. What does that mean for Ant's IPO reboot?

Bloomberg
Bloomberg1/9/2023 09:36 AM GMT+08  • 6 min read
Jack Ma is giving up control of Ant. What does that mean for Ant's IPO reboot?
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More than two years ago, Chinese regulators torpedoed Ant Group Co.’s would-be record initial public offering, sending shock waves across global capital markets. New rules have been slapped on the fintech giant, which has operations ranging from consumer lending and wealth management to online payments. The result is that the once-fertile landscape for web-based financial services has drastically changed as part of a government effort to bring the entire technology sector to heel. The next big question for Ant is whether it will get another chance at going public now that billionaire Jack Ma, China’s most-famous entrepreneur, is ceding control.

1. What would need to happen for Ant to go public?
The most important thing it needs is to set up a financial holding company, like a regular bank. Its application to the central bank for such a license was said to be nearing the final stages back in June. Ant then would need a sign-off from the China Securities Regulatory Commission to list in either 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 blessings from senior Chinese leaders and a wide range of government agencies. That includes the Financial Stability and Development Committee, which has been led by outgoing Vice Premier Liu He. The central bank and finance ministry are part of this group.

2. How does Ma ceding control affect things?
In early January, Ant said Ma is giving up control and will hold about 6.2% of voting rights after the adjustment. That could prolong Ant’s listing timeline. Companies can’t list 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 toward new technology companies. For Hong Kong’s stock exchange, this waiting period is one year.

3. What are regulators saying?
Signals have been mixed. Financial regulators have held preliminary discussions on reviving an Ant IPO, according to the people who spoke to Bloomberg News last year. One of them said the CSRC had set up a team to reassess Ant’s plans. On June 9, Reuters reported that China’s central leadership had given an initial nod to restarting Ant’s listing plans in both Shanghai and Hong Kong. The CSRC dampened hopes that anything was imminent when it denied that it was conducting review and research work on Ant’s IPO. However, it added that it supports eligible platform companies going public in China and overseas.

4. What’s Ant been doing?
Chairman Eric Jing has said the company would eventually go public, but said last year it had no plans to initiate an IPO yet. It reiterated that position in announcing Ma’s ceding of control in January, saying it was focused on business rectification and optimization. Ant has been recasting its business to meet the demands of China’s watchdogs, who have pledged to curb the “reckless” push of technology firms into finance.

In April 2021, the central bank told Ant to open up its payments app to competitors and to sever “improper links” that steered users toward more lucrative services such as lending.

See also: China's economy jumping into the Year of the Rabbit

Ant set up a consumer finance affiliate that went into operation that same year, with new rules that limit 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 holds 50% stake in the consumer-lending business that has capacity to issue about 400 billion to 500 billion yuan of loans, based on Bloomberg calculations.

Assets under management at Ant’s money-market fund Yu’ebao — once the world’s largest — dropped about 36% to 759 billion yuan (US$111 billion) as of September from two years ago.

See also: Shares in Tencent nearly double from October low as China prepares to end crackdown

5. What is Ant worth?
While Ant fetched a valuation of US$280 billion pre-IPO, based on its stock pricing, the myriad regulations imposed over the past two-plus years mean it’s now worth a fraction of that, as it’s now more “fin” than “tech.” Expectations of growth and margin are generally lower for banks than technology companies. Fidelity Investments, for example, cut its estimate for Ant to $70 billion last year, from $235 billion just before the IPO was suspended. BlackRock Inc. lowered its estimate to $151 billion, while T. Rowe Price Group Inc. trimmed its to $112 billion.

6. What would be included in a listed version of Ant?
Ant will probably use the financial holding company to go public. The central bank told Ant in 2021 to fold any financial operation 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 tapped it to buy everything from a quick coffee to property, generating US$17 trillion in payments over a year. It also could include Ant’s wealth management and credit scoring business. That said, it’s unclear what the final structure will be and if there needs to be even 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 payments services.

Glory Days | Jack Ma's Ant Group used to be a financial technology juggernaut
7. What does this signal more broadly?

The cancellation of Ant’s IPO kicked off a series of regulatory actions that have changed the playbook for the nation’s tech champions, which had prioritized growth at all costs. Global markets whipsawed in reaction to President Xi Jinping’s and the Communist Party’s evolving stance toward Big Tech in general and especially control over the vast pools of user data held by private sector companies, which they viewed as a potential threat to national security. Some big banks went so far as to call Chinese tech stocks “uninvestable.” Of late, though, the tone from Beijing has shifted. Regulators approved new game titles for Tencent Holdings Ltd. after a long pause, and also gave a nod for Ant’s consumer lending affiliate to increase its capital registration.

8. What happened to Jack Ma?
The co-founder of Alibaba Group Holding Ltd., from which Ant was spun, used to be one of China’s most high-profile entrepreneurs. He largely disappeared from public view after giving a speech criticizing regulators on the eve of the scuttled Ant IPO, but has been periodically spotted abroad, including in Europe and Asia. Once the richest man in China, Ma’s personal wealth took a major hit during the tech selloff. Still, the 58-year-old was worth about US$34 billion as of early 2023, according to the Bloomberg Billionaires Index. Ma has told Alibaba’s board 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 also have relinquished their formal corporate roles and increased donations to charity to align with Xi’s vision of achieving “common prosperity. - Bloomberg Quicktake

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