Ant Group, the fintech affiliate of Alibaba Group Holding Ltd, is to restructure as a financial holding company, China’s central bank said on Monday.
Ant has formed a “comprehensive and feasible restructuring plan,” at the urging of financial regulators, the People’s Bank of China said.
Last November, regulators halted Ant’s planned $37 billion stock listing, days before it was due to list in what would have been the world’s largest IPO.
“If the government really wants to crack down on monopoly, you should not set your eye only on private companies and the platform economy.
“Now, if investors suffer poor returns, it would be bode ill for future entrepreneurship in the platform economy.”
The recent fine and Ant converting into a financial holding company reduces the regulatory overhang for BABA (Alibaba). The key questions are: Can BABA outgrow the industry? Possibly not. Can BABA maintain its margins in the near term? Possibly not. Does this mean that the future for BABA is negative? Probably not.
BABA will have to invest in its core commerce business to protect its market share and invest in other businesses for new growth drivers.
In addition, margins in its cloud and logistics businesses are likely to improve going forward. Investment in businesses will impact the earnings near term. However, the long term prospects for BABA to compound earnings remains intact.
On the Ant IPO: It is difficult to speculate (on) the timing when the IPO happens. However, it is likely that the management will wait for the regulatory clouds to completely dissipate and the new operating structure stabilise prior to the IPO. Investors might wait to see the impact of regulations on growth and returns before developing an interest in the IPO.
BO PEI, SENIOR EQUITY RESEARCH ANALYST, CHINESE INTERNET AT OPPENHEIMER & CO, NEW YORK
“Yes I do think analysts and investors will feel more positive about the company now, with the uncertainties settled. But note that majority of analysts had ‘buy’ rating on the name so probably won’t see too many upgrades, but sentiment-wise is good. There is still some concerns around going after Jack Ma, but the fine last Friday cleared most of it.”
“No, IPO won’t happen any time soon. At least 2-3 years out. Valuation will likely halve from the previous IPO valuation. I do think the worst is over for Jack Ma.”
“Still think SH/HK as best venues for IPO. Ant regulations potentially benefit commercial banks and other fintech companies. Ant is required to offer consumers products from other banks and payment platforms and is allowed to only collect minimum consumer data for its business.”
OSHADHI KUMARASIRI, RESEARCH ANALYST, LIGHTSTREAM RESEARCH, WHO PUBLISHES ON SMARTKARMA PLATFORM, COLOMBO
“I expect this is mostly priced in Alibaba shares as most analysts and investors were expecting this outcome. Ant Group won’t be the same anymore with constant supervision China’s banking regulator, The People’s Bank of China.
“We believe it will limit Ant’s growth prospects and also open up the market for competition. An addition, by becoming a financial holding company, Ant will be subjected to certain capital requirements and it could also lead to slower growth.”
HONG HAO, HEAD OF RESEARCH AT BOCOM INTERNATIONAL, HONG KONG
“Today’s announcement is actually good news for Ant as it can help eliminate/remove some uncertainties around the fintech company and help it revive the cancelled IPO.
“While there’s now a bigger chance Ant can get its listing on track, the company’s valuation will be greatly lowered as it’s formally a financial company now not a tech firm, and the investors will be much soberer when they value Ant again.”
MITCHELL KIM, INDEPENDENT TMT ANALYST, NEW YORK
“This is more comprehensive measure — at least rhetorically — than what I had expected. I expected the government to focus on consumer lending. I am uncertain how Ant could scale back on money market fund as this is mostly the Alipay deposits.
It was already known that the government wanted to cut off the monopoly that Ant had through the Big Data collected through Alipay. On a rough level, given the limited visibility, my mid-range valuation would need to be lowered 20-30%.”
WINSTON MA, FORMER MANAGING DIRECTOR OF SOVEREIGN WEALTH FUND CHINA INVESTMENT CORP, NEW YORK
“The blockbuster IPO of Ant Group last November – and its suspension — was the tipping point that urged all relevant Chinese regulators to step up supervision of the major internet platforms. Now the comprehensive framework is being put in place, before the major platforms becoming “too big to regulate”.
“In short, the age of “exponential growth in the wilderness” for internet finance – and all cyber barons in various sectors — is over.”
ZENNON KAPRON, DIRECTOR AT FINTECH CONSULTANCY KAPRONASIA, SINGAPORE
“In many ways, the Ant Group restructuring will not be a dramatic shift. Restructuring as a holding company and requiring Ant to put up more capital actually brings the company in-line with many of the other Chinese financial services players such as Ping An, which holds a multitude of financial businesses under one umbrella.
“There will be some reshuffling of the underlying Ant Group businesses into different entities, which will have some, but likely very limited, impact on the company’s bottom-line. More importantly for the company however, the customer experience should remain largely unchanged for the millions of merchants and consumers that use the platform every day.”
KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH
“It looks like Jack Ma has gone a long way in repairing his relationship with the financial regulators in China. Ant Financial looks like they are going to file to become a supervised bank. It goes a long way in repairing relationship with China and specifically with Xi.
Even though Alibaba has gotten a fine placed against it, it’s in the past. Investors are looking to the future. Ant Financial may not grow quite as aggressively as it might have as a standalone entity or a nonregulated entity, it still is going to be able to allow growth in Ant Financial and thus, Alibaba.”
“Beijing has come after a lot of industries and they certainly wield their power but it looks like investors are willing to overlook that … I like to stay away from regulation in the stock picks I make. But a lot of people look at growth potential and will choose to overlook, what I consider, huge risk, which is the material nature of Chinese policy.”
NAN LI, ASSOCIATE PROFESSOR OF FINANCE, JIAOTONG UNIVERSITY, SHANGHAI
“The regulatory talk on April 12, 2021, is not a surprise at all to me. The nature of fintech is to apply information technology to improve the efficiency of financial intermediation, whose fundamental special role in the economy is to channel the fund from net savers (households) to net users (corporations).
“The financial intermediation, as a ‘delegated monitor’, helps to reduce the information asymmetry between net savers and net users of fund and monitoring costs through the economy of scale in collecting and processing information and diversification of risk.
“To diversify and enjoy the economics of scale, the FIs need to get big. Hence, financial regulation is necessary to monitor the monitor so that the FIs do not take advantage of households and corporations based on their sheer size.
Moreover, appropriate regulation is needed to separate different functions of the FIs to refrain from the over-risk-taking behaviour of FIs that may arise due to conflict of interests and moral hazard.
“This is why the payment services should be separated from the credit services (Huabei and Jiebei). This is also why the adequate capital ratio is imposed on any financial institution, including Ant Group.
“This is also why the data of consumers and producers collected from payment services and clearing houses should be under the oversight of the central bank instead of kept in the hands of private parties.”
DONG XIMIAO, CHIEF ANALYST AT ZHONGGUANCUN INTERNET FINANCE INSTITUTE
“The restructuring plan is stricter than expected, it means that Ant would need at least 200 billion yuan in registered capital to comply with the capital adequacy rule for financial holdings company.”
“There’s less uncertainty now as the restructuring plan finally lands, but we still need to wait and see how Ant implement all those requirements during the process.”