$200bn float for Alibaba’s pay­ment arm

The threat of a Covid resur­gence would un­der­mine the in­dus­try’s frag­ile at­tempts at re­cov­ery, writes Ed Clowes

The Daily Telegraph - Business - - Front Page - By Matthew Field

THE mo­bile pay­ments spin-off of Chi­nese tech be­he­moth Alibaba is set to float with a value of more than $200bn (£158bn) through a long-awaited dual list­ing in Shang­hai and Hong Kong.

Ant Group is pre­par­ing for the big­gest share sale since the start of the coro­n­avirus pan­demic, and one of the largest ever floats by an Asian com­pany.

The deal would also be a ma­jor boost to China’s cap­i­tal markets at a time when trade ten­sions with the US have made Wall Street a less at­trac­tive des­ti­na­tion for firms based in the Com­mu­nist state.

Alibaba be­came one of the big­gest floats ever when it listed for $168bn on the New York Stock Ex­change six years ago. The com­pany has yet to give details on the tim­ing or size of the Ant Group float, say­ing only that the process for go­ing pub­lic has now be­gun. It is ex­pected to sell a 10pc stake in the list­ing, ac­cord­ing to re­ports in the Nikkei news ser­vice.

Ant Group, formerly Ant Fi­nan­cial, was launched in 2004 as part of Alibaba, the tech­nol­ogy com­pany founded by Chi­nese bil­lion­aire Jack Ma, who is also the big­gest share­holder in Ant. It was then spun off in 2014.

Ali­pay is the world’s largest mo­bile pay­ments provider, over­tak­ing US ri­val PayPal six years ago.

While the oil shocks of April now seem a dis­tant mem­ory, there is mount­ing ev­i­dence that a sec­ond wave of Covid-19 could send prices spin­ning into a nose­dive once more, up­end­ing markets re­liant on en­ergy such as the Mid­dle East and the US.

The virus has af­fected more than 14m people glob­ally, and has now been re­ported in nearly ev­ery country.

Yes­ter­day, US oil prices edged lower to­wards $40 a bar­rel, as in­fec­tions spiked in Los An­ge­les and Hong Kong.

“The sec­ond wave has be­gun,” Wil­liam Schaffner of the Van­der­bilt Univer­sity School of Medicine told CNBC. The bad news un­der­cuts what has been a solid two months of op­ti­mism in oil markets, with prices re­bound­ing as lock­down mea­sures in Europe and Asia were slowly lifted.

But be­cause of this op­ti­mism, “an un­ex­pected dip of any mag­ni­tude will send the oil price into a tail­spin, whether swift and sharp, or long and painful”, ac­cord­ing to en­ergy con­sul­tancy Rys­tad.

So what is a sec­ond wave likely to look like, and how will it af­fect oil prices?

The idea of a sec­ond wave, in which the spread of the virus is curbed be­fore re­turn­ing sev­eral months later in a pow­er­ful way, is some­what unique to Europe. “If you look at global in­fec­tion rates, they haven’t peaked at all – they’re con­tin­u­ing to go up,” says Colin Smith, head of oil re­search at Pan­mure Gor­don. “The sec­ond wave con­cept is quite Europe-cen­tric, it re­flects our ex­pe­ri­ence.” Mean­while, the virus is now sweep­ing through oil-con­sum­ing coun­tries such as Brazil, In­dia, South Africa, and the US, with the death toll rapidly in­creas­ing. More than 600,000 people have died glob­ally.

More broadly, an­a­lysts say, is the is­sue of re­peat lock­downs and dis­rup­tions to pro­duc­tion in coun­tries that are un­der as­sault from the virus, in­clud­ing Saudi Ara­bia, Iraq, and the US – three of the largest oil ex­porters.

Be­cause of the more lo­calised na­ture of these lock­downs, in which the au­thor­i­ties will im­pose re­stric­tions on cities, rather than en­tire coun­tries, the im­pact is not likely to match the

‘The rise of Covid-19 cases in the US is of con­cern for the oil mar­ket given its high oil con­sump­tion’

sever­ity that was seen ear­lier this year.

In April, lock­downs in Europe and Asia pushed the de­mand for oil down by close to 26m bar­rels per day (bpd). The peak month in the sec­ond wave could come close to this at 18m bpd, ac­cord­ing to Rys­tad, com­pared to the lev­els pro­jected prior to the pan­demic.

“The rise of Covid-19 cases in the US is of par­tic­u­lar con­cern for the oil mar­ket given the country’s high oil con­sump­tion un­der nor­mal cir­cum­stances, as this sec­ond wave could paral­yse road fuel de­mand,” re­search by the con­sul­tancy shows. “In China, the re­sponse to the re­cent case resur­gence in Bei­jing shows that re-im­pos­ing rad­i­cal lock­down mea­sures is still a vi­able op­tion.”

How­ever, fresh lock­down mea­sures in re­gions such as Europe, South Amer­ica and Rus­sia are ex­pected to be more tar­geted and less strict as health sys­tems will be better pre­pared than they were in April, says Rys­tad’s se­nior oil mar­ket an­a­lyst Ar­tyom Tchen.

Be­cause of this un­cer­tainty, most an­a­lysts are un­com­fort­able about pre­dict­ing a rise in oil prices. Smith at Pan­mure Gor­don “con­ser­va­tively” pre­dicts av­er­age Brent crude prices of $35 for the rest of this year – lower than the cur­rent av­er­age of about $41.

“We are fairly early on in terms of Opec pro­duc­tion re­straints,” says Smith. “His­tor­i­cally, when you have a big crash, and there’s a big re­sponse from Opec, what you tend to see is dis­ci­pline is at its high­est around two to three months af­ter the cuts are put in place.”

The world’s lead­ing oil na­tions agreed in April to slash their out­put in a des­per­ate ef­fort to save the mar­ket from col­lapse. Led by Rus­sia and Saudi Ara­bia, the group of 23 pledged to cut pro­duc­tion by at least 10m bar­rels a day – end­ing a price war that had pushed crude prices be­low $20.

The ad­her­ence of coun­tries to the agreed upon pro­duc­tion cuts has been en­cour­ag­ing so far, Smith says. But com­pli­ance with these cuts is likely to come into sharp fo­cus in the sec­ond half of the year. “I think there’s plenty of scope for that to start to slip. If it does slip, you’ll find that oil markets and prices won’t be as san­guine as they are at the mo­ment.”

So who will be the big­gest losers from a resur­gent virus? Al­ready there are signs that re­cov­er­ing road traf­fic lev­els, an im­por­tant in­di­ca­tor for petrol and diesel de­mand, are beginning to fall once more in some of Europe’s largest cities as more people choose to stay at home.

Some cities in Western Europe have al­ready im­posed tar­geted lock­downs, smash­ing the pub­lic per­cep­tion that the virus has gone away for good. In Italy, Spain, and France, driv­ing lev­els are now in de­cline, ac­cord­ing to data from GPS maker TomTom. And al­though more people are on the move again, the In­ter­na­tional En­ergy Agency es­ti­mates that de­mand for petrol and diesel in Italy and France is still down more than 20pc.

Any sig­nif­i­cant flare up of the virus is likely to set this progress back even fur­ther. The same is true for jet fuel.

“Sim­i­lar to the cur­rent sta­tus quo, jet fuel and ga­so­line would be dealt the most painful blows,” in the event of a sec­ond wave, Rys­tad’s anal­y­sis shows. “But with more test­ing and smarter lock­downs, a lot of this de­struc­tion can be avoided – in­ter­na­tional borders and travel can grad­u­ally re­open, with travel re­stric­tions on cer­tain coun­tries and re­gions be­ing im­posed as new Covid hotspots ap­pear.”

Cars sit in a traf­fic jam along the Em­bank­ment dur­ing the morn­ing rush hour in cen­tral Lon­don

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