Why Chi­nese giant Ant Group is set to be the year’s big­gest IPO

The Daily Telegraph - Business - - Technology Intelligen­ce - By Matthew Field

He is known for his lav­ish par­ties and ec­cen­tric tastes. In the past Jack Ma, the 55-year-old bil­lion­aire founder of Chi­nese e-com­merce giant Alibaba, has at­tended the group’s an­nual com­pany fes­ti­vals dressed up as a punk rocker or as Michael Jack­son.

But the pub­lic float of his sec­ond com­pany, Ant Group, could turn out to be his big­gest ex­trav­a­ganza yet.

The forth­com­ing list­ing of the pay­ments firm, which was announced yes­ter­day, is ex­pected to value it at $200bn (£158bn) – mak­ing it eas­ily the most valu­able IPO of 2020 any­where in the world.

Ant Group, formerly Ant Fi­nan­cial, pro­vides mo­bile pay­ments ser­vices across China and fur­ther afield with one bil­lion users. Its prod­ucts in­clude mo­bile pay­ments apps, back end pay­ment ser­vices and dig­i­tal wal­lets and it is the mar­ket leader in China’s $16tn dig­i­tal pay­ments in­dus­try.

While lit­tle known in the West, Ant runs Ali­pay, the Chi­nese pay­ments tech­nol­ogy com­pany. It is also the world’s most valu­able pri­vate fi­nan­cial tech­nol­ogy com­pany and is in­creas­ingly pos­ing a di­rect threat to big es­tab­lished banks who are strug­gling to com­pete.

Ant Group’s ex­plo­sive growth to sur­pass former mar­ket lead­ers, such as PayPal, has made it this year’s hot

‘Ali­pay is mak­ing pro­gess out­side its home mar­ket – something its western ri­vals have long feared’

ticket float. It has many in­vestors – as well as bankers and lawyers ea­ger to par­tic­i­pate in the deal – sali­vat­ing at the prospect.

While Ma has stepped back from the day-to-day run­ning of his em­pire, af­ter many ini­tial pub­lic of­fer­ings were can­celled due to coro­n­avirus, the fi­nan­cial firm is ex­pected to float later this year. Eric Jing, ex­ec­u­tive chair­man of Ant, said the firm wanted to “make it pos­si­ble for the whole of so­ci­ety to share our growth”.

Un­like Alibaba, which made waves when it floated in New York in 2014, at the time the world’s big­gest ini­tial pub­lic of­fer­ing, Ant will float in a dual list­ing in Hong Kong and on Shang­hai’s nascent Star mar­ket, which China hopes will at­tract local tech­nol­ogy com­pa­nies.

An­a­lysts say Ali­pay con­trols more than half of the Chi­nese mar­ket in pay­ments and has grown quickly else­where. They have is­sued bullish es­ti­mates of Ant’s val­u­a­tion, with Bank of Amer­ica putting it at $210bn and JP Morgan at $218bn.

There is no spe­cific time­line at­tached to the float, al­though Ant Group is ex­pected to sell 10pc of its busi­ness, ac­cord­ing to Nikkei. It had prof­its in the re­gion of $2.2bn in the last quar­ter.

Launched in Hangzhou in 2003, Ali­pay was part of Taobao, an e-com­merce web­site owned by Ma’s Alibaba. The idea was to cre­ate se­cure pay­ments on the site. It used es­crow ac­counts to se­cure funds for third party sell­ers on on­line stores. Since then, it has ex­panded into dig­i­tal wal­lets and QR-code “scan to pay” mo­bile pay­ments.

When Ali­pay launched, huge num­bers of Chi­nese people had smart­phones, but were un­served in all ar­eas of fi­nance, says Sarah Ko­cian­ski, head of re­search at fin­tech con­sul­tancy 11:FS. “That en­abled it to cap­ture a sig­nif­i­cant mar­ket share early,” she said, “And to es­tab­lish it­self as a su­per app by of­fer­ing all these ser­vices in one place.”

In 2010, Alibaba spun off Ali­pay into a new com­pany. In 2015, it was re­branded as Ant Fi­nan­cial. In 2018, it raised $14bn in the largest one-off eq­uity raise ever, valu­ing it at $150bn. As well as Chi­nese in­vestors, over­seas funds par­tic­i­pated in­clud­ing Singapore’s Te­masek and US pri­vate eq­uity firms War­burg Pin­cus, Sil­ver Lake and Gen­eral At­lantic.

Ali­pay is now tar­get­ing two bil­lion users as it ex­pands west. “Ali­pay is mak­ing progress out­side of its home mar­ket, something the pay­ment ti­tans of Europe and the US have long feared,” says Ko­cian­ski. It has added thou­sands of mer­chants in the West.

In 2020, the preva­lence of Ali­Pay’s ser­vice even saw it turned into a dig­i­tal contact-trac­ing so­lu­tion for coro­n­avirus cases by China – show­ing the ubiq­uity of mo­bile pay­ments re­lied on by hun­dreds of mil­lions of people.

All this makes for an al­lur­ing nar­ra­tive for in­vestors look­ing for ex­po­sure in China. With the list­ing com­ing on Shang­hai’s new Star mar­ket, it is likely to be pop­u­lar at home. China’s state me­dia has urged in­vestors to pile into do­mes­tic stocks to foster “a healthy bull mar­ket”. But there are also scep­tics.

“I sus­pect [Ant] will go up a lot on day one,” says Wil­liam de Gale, a tech­nol­ogy in­vest­ment man­ager at BlueBox. “There will be a lot of pres­sure on people to buy the shares. There will be those who want to in­vest more in China. But I will be think­ing, ‘Will this re­ally cre­ate value for our in­vestors?’”

In­vestors still re­call the trans­fer of own­er­ship of Ali­pay from Alibaba in 2010, which ig­nited a bit­ter row with ma­jor share­holder, US tech giant Ya­hoo. Ma moved the own­er­ship of Ali­pay from Alibaba into a ve­hi­cle he con­trolled. At the time this was said to be to com­ply with local rules, but sparked share­holder out­rage and a set­tle­ment.

Pre­vi­ously, Alibaba was en­ti­tled to a profit share from Ant Group. Af­ter a swap last year it now holds a 33pc eq­uity stake, al­though Ma still owns the con­trol­ling share.

Ant Group has also faced reg­u­la­tory scru­tiny in the US, where it saw a re­cent takeover at­tempt of a US pay­ments firm blocked. In China, mean­while, reg­u­la­tors have taken aim at some fi­nan­cial tech­nol­ogy sec­tors, such as high in­ter­est loans.

Af­ter years as the fig­ure­head of China’s tech­nol­ogy boom, Jack Ma stepped down as ex­ec­u­tive chair­man of Alibaba last year. With geopo­lit­i­cal ten­sions, the prospects for Chi­nese firms over­seas is un­cer­tain. The im­pact of coro­n­avirus on the value of global stock markets is still in ques­tion while un­rest in Hong Kong could im­pact its cap­i­tal markets. Against this back­drop, Ant Group will be re­ly­ing on its high-growth story against the odds to jus­tify its $200bn price tag.

Alibaba founder Jack Ma is known for his ex­tro­vert na­ture and ex­trav­a­gance

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