UPDATE: Chinese regulators have now suspended the ANT Group public listing. This follows an announcement from Beijing regarding new regulations on micro-lending. If enacted, the new regulations could force ANT Group to hold more capital, altering its business to more closely resemble that of a bank and potentially affecting its valuation. I will do my best to write an update on this in due course.
Best known for its popular payment app, Alipay, ANT Group is the highest-valued Fintech company in the world and is on route to set a new IPO record. The Chinese fintech company, previously known as Ant Financial, recently finalised its upcoming IPO value to $34 billion, the highest ever recorded in history.
Don't be too surprised if you haven't heard of Ant Group - not long ago the company was barely known but in true Chinese style has catapulted up the ranks and into the limelight. The man behind the rocketing success is none other than business magnate and philanthropist Jack Ma, founder of Asian retail giant Alibaba, the precursor to Alipay.
Already as far back as 2013, Alipay overtook PayPal to become the world's largest mobile payment platform. The company now serves 1.3 billion users across Bangladesh, Hong Kong, Japan, Singapore, South Korea, Vietnam, Thailand, the Philippines, Indonesia, Malaysia, India, and Pakistan. In Q4 of 2018 it was recorded as holding 55.32% share of the third-party payment market in mainland China.
The War at Home
Alipay's primary competition in China, Tencent, has long been a strong competitor to Ant Group with the massive popularity of its WeChat Pay app. However, Alipay's mobile payment service has reportedly processed well over $17 trillion in transactions this year alone, despite having considerably less monthly Chinese users than WeChat Pay.
Although the two platforms serve a similar purpose of making digital payments, they differ significantly in how they function. WeChat Pay relies on the popularity of the WeChat social platform which helps account for its widespread usage, whereas Alipay is more focused on ecommerce payments due to its roots in online retail.
However, the upcoming IPO looks set to help Alipay further entrench itself as the payment platform of choice in China and beyond. It's introduction of ‘Tourpass’ technology in 2019 allows foreign visitors to buy and reload the Chinese yuan currency onto the app and use it locally. The development further highlights the company's intentions for foreign cooperation and international expansion.
A Break from Tradition
A listing of this kind is very rare from a Chinese firm considering the secrecy and restrictions commonly associated with the country. Historically, international entities have struggled to conduct business with Chinese firms due to the strict blocks imposed by the "Great Firewall of China". With the ruling communist party heavily monitoring and limiting any data in or out of the country, working relationships between companies have been somewhat challenging to maintain.
According to Ant Group Executive Chairman Eric Jing who spoke to FinanceFeeds this past July, "innovative measures implemented by SSE STAR market and the SEHK have opened the doors for global investors to access leading edge technology companies from the most dynamic economies in the world."
However, the move to a listed company will put Ant Group in the spotlight and force them to comply more readily with strict government regulations. The once disruptive fintech may find itself unable to offer international investors the same innovation they've become accustomed to, leaving its principal revenue source within Chinese borders.
A Record Breaking IPO
The Ant Group IPO was scheduled to go live on November 5, 2020, and if the listing had gone through as planned it would have dwarfed previous record holder Saudi Aramco's $29.4 billion IPO.
As Jack Ma voiced at the announcement of the Ant Group IPO, it will be the biggest ever priced outside of New York City. Pending its successful completion, four out of the top five IPOs ever conducted will be from Chinese companies, including Alibaba's 2014 IPO of $25 billion, Agricultural Bank of China's 2010 IPO of $22.1 billion, and Industrial and Commercial Bank of China's 2006 IPO of $21.9 billion.
Ant Group plans to sell shares on Shanghai's tech-focused Star market for RMB 68.80 ($10.26) and on Hong Kong markets for HK$80 ($10.32) each. This would bring the intended sale of 3.34 billion shares - an 11% stake of the company - to an estimated $34.4 billion. Alibaba will maintain control of a third of Ant Group shares and top executives, including Ma, will retain a near 40 percent control over the company.
If underwriters take the option to sell additional shares, the funding could increase to nearly $40 billion, pushing Ant Group's overall valuation above $313 billion - just below Mastercard's $319 billion valuation and higher than that of major US bank JPMorgan Chase at $309 billion.
US/China Trade Tensions
Trade tensions continue to rise between the US and China following the Trump administration's proposed legislation to delist Chinese companies from US markets if they don't provide access to audit reports. This follows the severing of vital component supply chains to Chinese companies like Huawei, the US's biggest competitor in the global mobile communications industry.
However, Chinese markets have enjoyed larger growth than most other markets this year, with the Shanghai and Shenzhen's CSI 300 rising by an impressive 15 percent. This is a strong indication of capital moving towards Asian markets and will solidify China's dominance of IPO valuation listings.
Despite the ongoing tariffs, Chinese exports to the US have continued to rise by over 20 percent, reaching $44 billion in September 2020. Growth can largely be attributed to the country's swift recovery from the COVID-19 pandemic and subsequent reopening of its economy.
Ant Group's potential for expansion beyond Asian markets could be hindered by the ongoing trade war, should it continue. The Trump administration prevented the group’s acquisition of international remittance service MoneyGram and was considering blocking Ant Group from conducting business in the US. However, with the Joe Biden-led Democratic Party now looking likely to regain power, US/China trade tensions may see some relief.