Ant Group seeks $200bn valuation in landmark dual IPOs in Shanghai and Hong Kong, not New York

Alibaba-affiliated fintech giant Ant Group has announced its long-awaited public offering with a dual listing on the new Shanghai Stock Exchange’s Star Board (or the Science and Technology Innovation Board, which is being dubbed “China’s Nasdaq”) and also on the Hong Kong Stock Exchange.

 

Ant, which was founded by billionaire Jack Ma, is one of the world’s most valuable unicorns. It was valued at $150 billion in mid-2018 after its last round of funding. Its dual IPOs in Hong Kong and Shanghai may be one of the largest IPOs in history, and the New York stock market is being left out in the cold. While Ant did not provide a timeline for its listing or say how much it wants to raise, people familiar with the matter said that it is seeking a valuation of at least $200 billion. This will possibly put Ant in the top-5 positions among all China financials, and even the top spot of global fintech companies. For reference: PayPal, the US fintech company, is valued at $204 billion.  

Ant’s initial product was Alipay, an online escrow payment service launched in 2004 by Alibaba. Today, Alipay is the modern gateway to Ant’s financial ecosystem of financial services, from wealth management and insurance to lending and credit scores. Alipay, the brand of Ant’s consumer finance app, is China’s most dominant payment platform with a 54% market share and has over 900 million annual active users locally and 1.3 billion worldwide. Leveraging on this massive user base, Ant has more than 600 million Alipay users depositing funds into its Yu’e Bao money market fund. Yu’e Bao quickly became the largest money market fund in China and has $157 billion in assets under management as of December 2019.

Besides Yu’e Bao, Ant also operates Ant Fortune, a marketplace that pairs nearly all of China’s mutual fund asset management companies with consumers. More than 120 mutual fund asset management companies in China have joined the platform, providing over 4,000 products to Ant Fortune users. Insurance premiums, one of many financial products that Ant offers, doubled during the fiscal year ended March. Like Ant Fortune, its insurance services also see strong margins, charging insurers tech and service fees to be featured in its marketplace. In lending, Ant’s MYbank, can issue more than 2 trillion yuan ($285 billion) of new loans to SMEs this year, up nearly 18% from 2019. Hinging on its proprietary risk management technologies, the non-performing loan (NPL) ratio for MYbank’s SME business loans has consistently been at around 1%, which is significantly lower than the industry average of 3% in 2019. Ant’s broadened base of financial products makes it more of a platform and less of a risk to China’s financial system.

Ant, ranked among the world’s most valuable financial services firms, has recently changed its name from Ant Financial (formerly known as Alipay) to Ant Group. It is a symbolic move to mark itself as a “technology” company that goes beyond financial services. Ant has repeatedly stressed on being a technology and digital-driven company offering payments gateways and selling digital infrastructure to banks, insurance groups and other traditional financial institutions with a worldwide scope. Most importantly, Ant has placed a high value on following technology developments in recent years, with achievements based on research centered around BASIC (Blockchain, AI, Secure, IoT, and Cloud Computing). As reflected, providing digital financial services like wealth management, online lending and insurance contributed more than 50% of its revenues during the fiscal year ended March. Digital payment services, the company’s bread-and-butter business, which functions as its core user traffic gateway to attract online users and boost user engagement by in-app O2O services such as lifestyle, travel, entertainment and transportation, remains the next biggest revenue contributor to Ant. Revenue contribution from innovative technology is rather small (<10%) but may rise quickly. Ant has not yet made public its financial statements, but it generated about $721 million of profit for Alibaba in the March quarter as recorded in Alibaba’s earnings filing. Based on Alibaba’s 33% equity stake in Ant and Alibaba’s share of results of Ant one quarter in arrears, Ant generated about $2.2 billion of profit in the December quarter.

Ant’s dual IPOs in Shanghai and Hong Kong

Ant has bypassed New York, the world’s largest financial market entirely and chose simultaneous listings in Shanghai and Hong Kong. This is possibly due to China developing its own Nasdaq-style Star Board and both markets having enormous opportunities with respect to broad investor base and a deep capital pool. Ant seemingly has made a strategic calculation that by offering shares to both onshore and offshore markets, this will allow it to reach a wider base of investors. Many international investors do not have the mandate to invest in yuan-denominated assets because of the capital controls regime. As such, most of China’s largest lenders and insurers have an A and H share listing that serves the purpose. Besides bringing in new investors, a Hong Kong listing is also important for Ant’s existing owners and new investors who might want to trade with ease. After all, Hong Kong is an important international financial and trade centre, as well as a hub connecting the Chinese mainland and the rest of the world. At the same time, a listing in mainland China would also make trading in Ant’s shares more accessible to its users.

This illustrates a shift in the balance of financial power eastward as more and more of China’s leading technology companies raise capital in markets closer to home where its army of users is based, creating a positive feedback loop of deeper secondary trading that attracts yet more companies. This evolution is due to the bold reforms made by Hong Kong and mainland China bourses to open the door for global investors to access leading edge technology companies from the most dynamic regions in the world and to allow those companies to have greater access to the capital markets.

Hong Kong reinforces financial hub position

Alibaba’s “homecoming” secondary listing in Hong Kong was the first under Hong Kong’s new listing rules to allow weighted voting rights structures known as dual-class stocks. This move is both welcomed and deemed a show of confidence in Hong Kong. Next to Alibaba’s strong secondary listing debut in Hong Kong, similar moves of its rivals JD.com and China’s second largest online gaming company, NetEase, reflect investors’ growing confidence in China’s new economy, in particular the digital economy, as well as China’s future development. Likewise, Yum China, the operator of KFC, Pizza Hut and Taco Bell, is reportedly eyeing a similar secondary listing. Yum China is the latest US-listed Chinese company seeking to broaden its investor base in Hong Kong. This further reinforces Hong Kong’s status as an international financial powerhouse. 

 

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