$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 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