China’s Ant Group set for record-breaking IPO

China’s Ant Group set for record-breaking IPO
Source: Shu Zhang, Reuters
The IPO could potentially raise Ant’s valuation to around US$300 billion, bigger than some of the largest American banking groups.

China’s Ant Group, the financial services company behind popular digital payments app Alipay, has been cleared by regulators for a potentially record-breaking Initial Public Offering (IPO) in the coming weeks.

Ant Group, an affiliate company of Jack Ma’s Alibaba Group Holdings Ltd., is aiming to raise some US$35 billion dollars in its share sale, which would account for a stake of around 10-15%. The IPO could raise Ant’s valuation to as much as US$300 billion, bigger than some of the largest American banking groups.

These developments have not gone unnoticed in the United States. The Trump administration has been weighing a “blacklisting” of Ant Group, which would see the company join other sanctioned Chinese companies such as Huawei Technologies Co., Ltd. and Semiconductor Manufacturing International Corporation (SMIC), sanctioned over “national security” concerns.

The effectiveness of any sanctions is in doubt, however, especially as China continues its attempts to push forward in the field of financial technology.

Record breakers

Ant Group is affiliated with Chinese billionaire Jack Ma’s Alibaba, one of China’s, and the world’s, largest corporations. The conglomerate owns a 33% stake in Ant Group, which was launched in 2004.

The group is responsible for Alipay, the popular digital payments system in China, which more than 700 million people and 80 million businesses a month use to pay bills and make other transactions.

By volume, Ant Group’s Alipay is the largest mobile payment app in China, processing some 200 trillion RMB (US$28.8 trillion) of payments and transfers annually alongside Tencent’s mobile payments platforms on WeChat.

Ant Group’s IPO plans have been in the pipeline for months, but in October the group was successfully cleared by China Securities Regulatory Commission (CSRC) to stage one of the legs of its public offering on Hong Kong’s stock exchange.

The location of this IPO is important. Ant has not chosen any of the major US or European financial centers, instead choosing to stage a dual listing on Hong Kong’s stock exchange and in Shanghai’s Star Market, in China proper. With its Hong Kong listing approved, it is all but certain the dual listing will be cleared to go ahead.

According to Clement Chan, managing director of accounting firm BDO, staging the IPO partly in Hong Kong, despite increased tensions connected to the city in the last year, “indicates Beijing’s commitment to keep the city’s role as an international fundraising hub for Chinese companies” and illustrate an alternative to America’s Nasdaq, among other competitors.

Alongside this, the IPO is also expected to illustrate the grandeur of some of China’s largest companies to observers worldwide. The current IPO record is held by Saudi Aramco, whose 2019 IPO raised some US$29 billion in a 1.5% share sale.

Ant Group is expected to break this record, with analysts expecting the company to raise anything in excess of US$30 billion, raising the company’s valuation closer to US$300 billion. This would send Ant Group’s valuation above some of America’s largest banks, such as Bank of America Corp. and Citigroup Inc.

Some investors are already lining up. Singapore’s sovereign wealth fund, GIC Pte, is planning to invest more than US$1 billion and interest has also been shown by other existing investors such as Temasek Holdings Pte and the National Council for Social Security Fund.

Under threat?

As with other Chinese companies recently, however, Ant Group has not escaped the specter of possible American sanctions.

The Trump administration is reportedly exploring sanctions on Ant Group, which could include placing the company on the US Treasury Department’s “Entity List,” which would force US companies to secure licenses before dealing with the Chinese group.

Some Republican lawmakers have been vocal in calling for sanctions. Republican Senator Marco Rubio argued in a statement to Reuters that “it’s outrageous that Wall Street is rewarding the Chinese Communist Party’s blatant crackdown on Hong Kong’s freedom and autonomy by orchestrating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges.”

Rubio added that “the Administration should take a serious look at the options available to delay Ant Group’s IPO.”

Ant Group’s IPO is being advised by Wall Street banks Morgan Stanley and Goldman Sachs, among others.

But US sanctions would be largely ineffective on a company that does not do significant business outside of China. Less than 5% of Ant Group’s revenue is derived from overseas, with Alipay used by more than 700 million monthly active users in China alone.

Abishur Prakash, geopolitical specialist at the Center for Innovating the Future, told CNBC that “the trade blacklist is largely symbolic. It won’t be effective in stopping Ant from either going public or investing in critical areas,” but could make “other countries cautious about linking their tech ecosystems to China.”

It could also place Ant Group’s existing international connections under risk. Some international companies, such as Visa Inc. and Mastercard Incorporated, have been growing their ties with China’s payment giants, such as Alipay, ties which could be snapped if sanctions hit.

Regardless of sanctions, China is intent on pushing its financial technology sector full steam ahead. The country recently staged a trial of its new “digital yuan,” giving 50,000 shoppers in the southern city of Shenzhen some US$1.5 million in its new Digital Currency Electronic Payment (DCEP) to use in thousands of retailers in the latest step forward to a cashless society.

Despite potential US sanctions looming in the background, Ant Group’s IPO remains set to break records, not only displaying China’s commitment to its financial tech industry, but the strong recovery of its economy in general after the coronavirus pandemic.

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