The world’s biggest float comes with question marks

Six years ago, Jack Ma was in the middle of a crowd of admiring supporters as he rang the bell at the New York Stock Exchange for Alibaba’s record $US25 billion ($35 billion) float.

Now Ma, who is worth around $US48 billion, looks set to break that record as he gears up for what is set to be the world’s biggest-ever initial public offering when Ant Group goes public. Ant received bids that would value it at $US35 billion in a dual listing in Hong Kong and Shanghai.

Jack Ma maintains a tight grip on his fintech giant.
Jack Ma maintains a tight grip on his fintech giant.Credit:Jewel Samad

The Chinese fintech giant is going to make some investors, not least Ma who owns around 9 per cent of Ant, filthy rich.

Ant’s IPO is set to surpass Saudi Aramco’s record $US29 billion sale last year. The tech giant could have an IPO valuation of at least $US280 billion or even as high as $US320 billion, making it four times larger than Goldman Sachs.


“This was the first time such a big listing, the largest in human history, was priced outside New York City,” Ma said on Saturday.

But while Alibaba’s float was a high point in East-West relations, Ant is faced with US blacklists. There are also concerns from analysts over the governance of the Chinese giant.

One fund manager told commented earlier this year: “It makes a lot of money. But it is not going to make money for our investors. They [Jack Ma and insiders] have all the control. If there is a breakdown between the US and China, there would be very little value to this business.”

Ant Group was founded 16 years ago as part of Alibaba, starting life as a payments processor for the giant Chinese equivalent of Amazon. This evolved into Alipay, a so-called “super app” used by more than 1 billion people. The app lets users send and receive money, access credit card and utility bills, trade stocks and monitor credit scores.

Three years ago, it surged from mobile into the physical world, seeing millions of merchants in China sticking Alipay QR codes in their windows and on tills. This meant consumers could scan a code and pay with their smartphone. Amid coronavirus, it has also become a key tool for China in contact-tracing and monitoring cases.

This has led to explosive growth. Around $US17 trillion worth of payments were processed by Ant in the year to June. Revenues rose 42 per cent year on year in the nine months to September when it made $US17.7 billion. It reported profits of $US3.2 billion for the first half of the year.

Ant Group's "super app" Alipay is used by more than 1 billion people. The app lets users send and receive money, access credit card and utility bills, trade stocks and monitor credit scores.
Ant Group’s “super app” Alipay is used by more than 1 billion people. The app lets users send and receive money, access credit card and utility bills, trade stocks and monitor credit scores.Credit:Bloomberg

For now, nearly all the growth has been concentrated in China. Around 95 per cent of Ant revenues come from its home market. While it has had some success in South Asian markets, progress in the West has been slow.

Sarah Kocianski, of fintech consultancy 11FS, notes so-called “super apps” have been successful in China, primarily because many people have had such poor access to financial products until now.

Furthermore, Chinese regulators have moved to keep its growth in check. With consumers taking out short term loans through its app, Ant has been the subject of regulatory scrutiny over high interest rates, with courts expected to impose a cap.

In particular, regulators have been concerned about the “systemic risk” of Ant, given 500 million people borrowed “micro-loans” through its services in the last 12 months. Regulators in China are proposing limiting how much debt such companies can raise. There are other challenges that may give some investors pause for thought. One is governance. While Ma, the 56-year-old Alibaba founder, has stepped back from day-to-day running, Ant, ultimately, remains under his control. This control is not simply theoretical. In 2011, Ma moved to split Alipay into a separate company from Alibaba. However, he made the move without consulting his biggest outside shareholder, Yahoo!

Yahoo! sued, and in the end secured a settlement, but that deal is likely only a fraction of what it could have made.

A final question for investors to consider is a potential US blacklisting. According to reports, the Trump administration is considering adding Ant to a blacklist that features companies such as Huawei.

Even if the US does attempt to impose restrictions on Ant, some analysts do not think it will halt the growth of the juggernaut. Yang Wang, a Hong Kong-based analyst with Counterpoint Research, says: “We do not think this will pose a material risk on Ant… because of the company’s limited international exposure.”

Ant Group will list on the Hong Kong stock exchange on November 5, according to an exchange filing. A date for Shanghai has not been fixed.

The company is far from done in its relentless expansion and there is still plenty of room for Ant to grow, even if it is hemmed in to its domestic market. But investors will need to be aware: it is Jack Ma who still rules this colony.

Telegraph, London

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