In a surprising move on Saturday, Ant Group, the Chinese fintech giant, announced a share buyback valuing the company at $78.54 billion. This is a significant drop from its previously estimated value of $315 billion prior to the abandonment of its initial public offering (IPO) in 2020. This announcement came a day after Ant Group was fined $984 million, effectively concluding a years-long regulatory investigation and marking a critical stage in the crackdown on the country’s internet sector. The fintech company stated that it proposed repurchasing up to 7.6% of its equity interest, a move offering a liquidity option for its investors. Main points include: The share buyback, valued at a 75% discount from the 2020 valuation, represents a significant drop from its last fundraising round in 2018, when the company was valued at $150 billion. Ant Group’s primary shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, both holding over 50% of Ant’s shares, have decided not to participate in the repurchase. The repurchased shares will be transferred to Ant Group’s employee incentive plans to attract talent.
Regulatory Investigation: The Aftermath
This development comes in the wake of a heavy fine imposed on Ant Group by China’s central bank, which totaled 7.12 billion yuan ($982 million). This penalty is viewed as a crucial step for Ant Group to secure a financial holding company license, bolster its growth, and potentially revive its plans for a stock market listing. “The buyback price is higher than the valuations made by many institutions internally… so I believe that some institutions will choose to participate in the buyback,” said Hanyang Wang, an analyst at 86Research. He also noted that this move hints at an unlikely short-term IPO recovery. Ant Group’s fine signifies an essential step towards concluding China’s stern crackdown on private enterprises, which commenced with the cancellation of Ant’s IPO in late 2020. Following the IPO’s cancellation and the forced restructuring, several of Ant’s global investors downgraded their valuation of the company. For instance, Fidelity dropped it to $68 billion in mid-2021.
Impact on Alibaba
As an affiliate of e-commerce leader Alibaba, Ant Group’s ordeal greatly impacted Alibaba’s performance. When news of the investigation’s conclusion broke out, Alibaba’s stocks witnessed an 8% surge, closing at 90.55. Prior to this, the ongoing investigation had been a significant overhang on Alibaba’s stock, which peaked at 319.32 in October 2020.
Looking Forward
Ant Group, founded by billionaire Jack Ma, runs China’s ubiquitous mobile payment app Alipay and various other businesses, including consumer lending and insurance products distribution. It underwent a sweeping business restructuring in April 2021, turning into a financial holding company. This change subjected it to rules and capital requirements akin to those applicable to banks. Despite the challenging environment, Ant Group remains hopeful about reviving its plans for a stock market debut.
A Broader Crackdown on Chinese Tech Industry
The conclusion of the Ant Group investigation marks a key turning point in the larger narrative surrounding China’s internet sector. Over the past few years, Chinese authorities have significantly intensified their regulatory oversight of this rapidly growing sector, scrutinizing companies for potential antitrust violations, data privacy breaches, and other regulatory non-compliance issues. The move is part of a broader effort to establish firmer control over online platforms that have become central to the everyday lives of Chinese citizens.
Other Notable Regulatory Actions
Aside from Ant Group, the crackdown has also affected other prominent tech companies. On the same day that the fine on Ant Group was announced, Chinese authorities also levied fines against two local banks, an insurer, and Tencent Holdings’ online payment platform Tenpay. The latter, a key competitor to Ant’s Alipay, had also been under the regulatory radar for some time.
Facing the Future
Looking forward, it is expected that Chinese tech companies will need to adapt to this new regulatory reality. This may involve significant changes in their business models, increased investments in regulatory compliance, and potentially slower growth as they navigate these regulatory hurdles. Nevertheless, these regulatory changes are not entirely negative. As China’s tech sector continues to evolve, companies that can successfully adapt to these new regulations are likely to emerge stronger and more resilient. For a more detailed analysis, please refer to Financial Times.
