Ant Group gears up a dual-listing IPO in China

Ant Group (former Ant Financial), an affiliate of Chinese e-commerce giant Alibaba, announced that it has started the process of a dual listing in Hong Kong and Shanghai.     

According to media reports, its IPO valuation could be as high as $200 billion, which is higher than Meituan, JD.com, and only next to Alibaba and Tencent in Chinese new economy companies.

Although no specific listing date has been announced, the news of Ant Group's official listing has been enough to shake the capital market, with both the SSE (Shanghai Stock Exchange) and the HKEx ( Hong Kong stock exchange) giving positive responses to Ant Group's actions.

• The SSE said that Ant Group's application for the STAR board demonstrates the market attractiveness and international competitiveness of the board as the "preferred listing place" for Chinese science and technology enterprises.

• HKEx CEO Charles Li said Ant Group's choice to apply for listing on the Hong Kong Stock Exchange reaffirms Hong Kong's position as the world's leading market for IPO capital raising.

It is not difficult to understand the HKEx's reaction. The entry of Ant Group means that the STAR board will give birth to super unicorns again after SMIC and Cambrian, while the HKEx, which has a large number of new economy companies, is becoming more and more "Nasdaq" in the East.

In addition to the HKEx, investors on both sides of the border are also excited about the entry of new quality targets, while the Ant Group headquarters is about to see another batch of financial freedom seekers.

To sum up, the market has been waiting a long time for Ant Group's IPO.

 

Why does Ant Group choose a dual-listing of both A and H-shares?

In June this year, the company has filed for a change in its business-registration records from Ant Financial Services Group to Ant Technology Group. Some analysts at the time said the move was to comply with regulatory requirements and also to prepare for an IPO.

In less than half a month, the media quoted informed sources that the Ant Group has been seeking to be listed in Hong Kong and mainland China stock exchange, and it prefers to be listed first in Hong Kong as the Asian financial center. In this regard, the Ant Group with a "news is not true" to deny.

Ant Group had responded relatively formally to the IPO rumors in January, but with the same attitude of denial. On January 14, Tencent issued an exclusive report saying, "Ant Group will be listed in the AH two places, CICC as well as Credit Suisse actually provide pre-IPO services for it for some time, and have done a lot of preparatory work".

Similar to the above rumors, there have been claims about Ant Group's IPO status over the years. Ant has remained in denial about all the rumors but has not rejected the IPO to move. Eric Jing, former CEO and now current executive chairman of Ant Group has said that Ant will go public at the right time, but the IPO itself is not the ultimate goal.

Now that the rumor has become fact, the timing of Ant Group's official announcement and the choice of "A+H" for its IPO becomes quite interesting.

In light of recent developments on the STAR board and the HKEx, Ant Group's listing comes at an opportune time.

• Although it has only been one year since its establishment, the board has already attracted more than 130 science and technology enterprises, among which there are many high-profile star companies such as SMIC and Cambrian, and JD Digits is also on its way to list on the board. Correspondingly, the international competitiveness of the STAR Board is increasing day by day.

• After reforming its listing system in 2018, the HKEx, which had missed out on Alibaba, attracted new economy companies such as Xiaomi and Meituan, and welcomed well-known Chinese stocks such as Alibaba, NetEase, and JD.com back to Hong Kong for secondary listings. Compared to the previous pattern in which financial real estate dominated the landscape, the HKEx is much more "tech-savvy" than before.

The reason why Chinese technology companies to NASDAQ is for the listing system, and also for the attractiveness of capital considerations. Today, however, the obstacles and concerns are dissipating, and with the recent market boom, the advantages of "A+H" in the new capital environment are more than enough to offset the NASDAQ's previous appeal.

By choosing to list on a Chinese exchange, Ant Group not only has access to sufficient liquidity and capital but also enjoys a higher market capitalization and P/E ratio. In addition, the "A+H" structure also provides Ant Group with a higher risk-resilience.

The addition of Ant Group will have a significant demonstration effect on the STAR board and the HKEx as a quality target for the new economy. Meanwhile, investors on both sides of the border will have a more convenient channel to share the dividends of Ant Group's growth.

 

How does Ant Group grow into a tech "unicorn"

The company is known for running Alipay, one of China's most popular mobile payment systems. 

Alipay was originally launched as a "secured transaction" to solve the trust problem of Taobao transactions, but it was split from Taobao in 2004 under the attention of executives like Jack Ma and operated independently through Zhejiang Alipay Network Technology Co.

In the following years, Alipay entered external markets such as online games, airline tickets, B2C, as well as utility bill payment business, which gradually established its leading position in the payment market and extended its business to financial services.

After gradually delving into the financial services sector, Ant Group (Ant Financial), was officially established in October 2014. And it has continued to delve into the financial and technology sectors, deploying consumer finance, credit reporting systems, insurance products, and cutting-edge technologies such as AI and blockchain.

Since its founding, the starter product Alipay has grown into a super APP with 1.1 billion users and accounts for more than 50% of the market share in the payment field. As for Ant Group, it has grown into a super unicorn with six business segments including payments, wealth management, micro-loans, insurance, credit, and technology output.

While developing finance and technology, Ant Group's financing journey is also ongoing, according to public information:

• In July 2015, Ant Group completed its Series A round of financing totaling RMB 12 billion, which was participated by SSF, CDB, and other institutions.

• In April 2016, Ant Group completed its Series B round of financing, raising a total of over $4.5 billion, with participation from CCB's CIC Overseas and CCB Trust, China Life Insurance, China Post Group, and other institutions.

• In May 2018, Ant Group completed a total of $14 billion in the financing, and the valuation of Ant Group reached $150 billion after this financing.

In terms of the shareholding structure, Jack Ma holds about 8.8% of Ant Group's shares and has 50% of the voting rights. The Forbes Global Real-Time Rich List on July 20 showed that Jack Ma is worth $41.5 billion, and is expected to continue to rise as Ant Group goes public.

Beyond that, Ant Group's profitability is equally compelling. Back when it completed its Series B round of financing, Ant Group had been profitable for three years and qualified for listing on the A-share mainboard, which is rare among new economy companies. The financial report shows that in September 2019, Alibaba acquired a 33% stake in Ant Group. Some media estimated that Ant Group made a profit of $2 billion in the fourth quarter of 2019 alone, according to the earnings report. 

According to Alibaba's latest financial report, digital financial services contributed more than 50% of Ant Group's total revenue during the 12-month period ended March 31, 2020. The business mainly includes three categories: wealth management, micro-loans, and insurance.

However, with Ant Group's name change and listing, "technology" will play a more important role in its revenue structure.

In June, Ant Group CEO Simon Hu said in an interview with Bloomberg, as a technology company, it is expected that 80% of Ant's revenue will come from technology service fees over the next five years. Therefore, the proportion of Ant Group's revenues from licensed financial services operated by its own funds will decrease accordingly.

Nevertheless, it has a lot of trouble. The reason why Ant Group chooses to change its name before listing and stresses technology services is that its financial business is facing regulatory risk. Not only Ant Group, but also Internet giants such as Baidu and JD.com are downplaying finance and emphasizing "technology output".

There were also rumors that Ant Group plans to set up a new subsidiary to apply for a financial holding company license to achieve "separate management of finance and technology".

At the group level, Ant Group shoulders the heavy responsibility of deepening the cross-strategy. Alipay's purpose in diluting the financial payments tag is to synergize with Alibaba's digital economy business, such as Ele.me and Koubei, to tap into the stock internally and defend it externally rivals such as Meituan. The success of Alipay's transition will largely determine the course of the battle.

With the IPO plan finalized, Ant Group, a super unicorn birthed from the PC and mobile Internet, has finally stepped out of the water.

 

This is an article from WeChat official accounts Deep Insights (ID: deep_insights), written by Hong Jian, translated by Chris Yuan.