Days after China pulled off the biggest initial public offering (IPO) in history, Ant Group Company gathered its investment bankers at a Hong Kong convention center opposite Victoria Harbour.
Even though employees of Citigroup Inc., JPMorgan Chase & Company, and Morgan Stanley had seen the lifetime vaporized deal — along with a $400 million fee — Ant’s team had an optimistic message: don’t lose faith. On the big screen were these words: “Start with the heart.”
A year later, with registration for Ant’s $35 billion IPO officially ending Wednesday, optimism from that gathering has faded. Bankers say they have stopped receiving regular communications from the firm, and some suspect it will be back on the market before 2023. Higher valuations are estimated to be cut by up to two-thirds once it reaches $300 billion.
Jack Ma, chairman of Alibaba Group Holding Ltd., pauses during an interview at the Viva Technology Conference on Thursday, May 16, 2019 in Paris, France. Donald Trump’s latest offensive against China’s Huawei Technologies Co has made Europe even bigger. There are bound to be which side to choose, but French President Emmanuel Macron is holding the line.
More broadly, Jack Ma’s actions that began with the fintech giant have struck every corner of China’s technosphere as Beijing seeks to end the domination of some heavyweights and create “shared prosperity.” The question on everyone’s mind: When does it stop? If the ant is any indication then not for a while.
“While the direction for the Ant remake is clear, the implementation is quite difficult,” said lead researcher Dong Ximiao of the Zhongguancun Internet Finance Institute. “For Ant and its investors, uncertainty remains and the pain is not going to end soon.”
Ant’s forced overhaul runs deep. Its ubiquitous super-app Alipay, the one-stop shop for the financial needs of a billion users, is on the verge of being chopped off. Its treasury of consumer data has to be thrown open to rivals for a fee. There’s talk, officially in the hall, of potentially weeding out its lucrative consumer lending arm from any future IPOs. Employee morale has plummeted.
Some employees at the firm’s Hangzhou headquarters said Ant resembled traditional banks, which founder Ma denounced as a “pawn shop” at the Bund summit in Shanghai a year earlier. Chronological regulation, he warned, would stifle innovation in China.
One employee said regulatory compliance has become a priority in a fintech, which once surpassed competitors at every turn. Another said some employees believe that state ownership may be the best solution in the juggernaut. Officials have discussed installing a government representative in Ant’s executive ranks to oversee the company.
Bloomberg spoke with nine bankers, regulators and Ant employees for this story, all of whom requested anonymity while discussing a sensitive matter. Company officials as well as the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission did not respond to requests for comment. Citigroup, Morgan Stanley and JPMorgan declined to comment.
For now, officials are grappling with how to separate fintech into separate ventures with state-backed partners, according to people familiar with the plans. While regulators, led by the central bank, have put out comprehensive guidelines, they are short on details, ant left to proceed by trial and error, the people said.
As part of the overhaul, Ant has already increased its capital base to 35 billion yuan ($5.4 billion) and is moving to build firewalls into an ecosystem that once earned it funding from Alipay. Management, consumer credit and the like was allowed to direct traffic to services. -Demand neighborhood services and delivery. Its profit in the March quarter fell by 37 per cent compared to the previous three months. Ant’s profits increased more than eightfold in 2019, before the clampdown. Net income in the first half of 2020 exceeded the previous year’s total.
Among the initiatives taken or planned by Ant:
- It secured approval to fold the lending arms Jibei and Huabei into a new consumer finance entity with 8 billion yuan of registered capital. Ant holds a 50% stake in the venture with state-backed investors. Capital base lends its total at 266 billion yuan, a fraction of the 1.7 trillion yuan ant facility as of June 2020.
- According to a person familiar with the matter, the authorities want Ant to create a separate app for the loan business, to be separated from Alipay.
- Alipay users must agree to new terms on sharing credit history with the central bank before tapping Hubei or Jibei loans
- To separate consumer transaction information from its other offerings, Ant will move the data into a new credit scoring joint venture it will set up with state-owned firms including Zhejiang Tourism Investment Group Co. Ant will have a 35% stake in the joint venture. Once approved by the central bank, the venture will allow rivals to check the creditworthiness of borrowers for a fee like other credit scoring firms in China.
- Assets under management in its money-market fund Yu’Bao – once the world’s largest – have fallen by nearly a third from the end of last year to 815 billion yuan as of June.
Ant and rivals such as Tencent Holdings Ltd. The to-do list for fintech operations is constantly expanding. Beijing’s focus has shifted from reining in its explosive online lending to more complex tasks such as reducing the dominance of their payments apps (which together control more than 90% of mobile transactions), opening up their platforms and Ensuring the security of consumer data.
For starters, e-commerce giant Alibaba Group Holding Ltd. has begun adding Tencent’s payment system to some of its apps, breaking up the long-enjoyed monopoly Alipay. Alipay and WeChat Pay have yet to open their ecosystem to rivals, as requested by regulators, while China’s central bank is encouraging consumers to adopt its own digital yuan.
The government also proposed setting up a joint venture with local technology giants to oversee the lucrative data collected from millions of consumers, people familiar with said in March.
According to some early Wall Street proponents, the myriad restrictions mean Ant is worth a fraction of his former self. Fidelity Investments cut its valuation estimate for at least the second time this year to about $78 billion as of June 30. Others are more optimistic: BlackRock Inc. values the company at $174 billion and T. Rowe Price Group Inc. at $189 billion. Ant had a pre-money valuation of $280 billion before holding its IPO.
What Bloomberg Intelligence Says: “Ant Group’s business model risks collapsing on forced divestitures from its Alipay and credit-product apps. Credit gains will be more than halved, group valuations slashed to $71.5 billion, we Let’s calculate,” said Francis Chan, banking and fintech analyst.
Chairman Eric Jing, who has held the role of chief executive officer since Simon Hu’s abrupt departure in March, has promised that the company will eventually go public. Yet employees are losing hope that it may pull it off anytime soon.
A former employee at Data recently said his departure was one of many. People familiar with said that Ant’s stock options are no longer enough to retain employees or attract new talent. Morell suffered an additional blow after Ant restarted its buyback program on employees’ existing restricted stock options, making it difficult for them to redeem vested shares at an already low value, the people said.
Ant’s chief public officer on Monday, responding to disgruntled employees internally, said Ant would consider more ways to meet their liquidity needs.
To be sure, many employees are stuck around. He said Ant streamlined the promotion process for junior employees earlier this year. The ever-increasing action in the tech sector has also prevented workers from jumping off the ship. ByteDance Limited and Didi Global Inc. Nearly every major player—including those traditionally viewed as desirable employers—faces its own scrutiny.
Bankers who were betting an IPO a year ago will happen this year or next, now say that the chances of 2023 are high. Regulatory hurdles remain. According to two people familiar with the matter, as part of the IPO investigation, several executives from the Shanghai Stock Exchange were investigated for their role in Ant’s accelerated sale process. And no regulator would dare to flag a list unless President Xi Jinping himself is on the board.
For Ant, its investors and bankers, this means more delays in getting its once-promising IPO off the ground.
Vincent Chan, China strategist for Althea Capital on Bloomberg television, said, “You need to get to a stage where the government becomes very comfortable about Internet companies, and e-commerce behaves like a state-owned entity. Go.” “It’s going to be a very long way off.”
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)