by (Bloomberg) – The shares of Alibaba Group Holding Ltd. rose in Hong Kong trading after Reuters reported that China is likely to announce a fine of more than 8 billion yuan ($1.1 billion) against its fintech affiliate. company founded by Jack Ma.
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China’s central bank is expected to pay the fine against Ant Group Co. on Friday, Reuters said, citing people with knowledge of the matter. That will allow Ant to seek a financial holding company license, revive growth and ultimately revive plans for an IPO, it added.
Shares of Alibaba rose 3.4% in Hong Kong on Friday. The company’s American Depositary Receipts were up about 2.6% in premarket trading before the New York stock exchanges opened.
“The market is happy with it because it seems that the scrutiny is over and the fine, although high in absolute terms, is very manageable for such a large company,” says Vey-Sern Ling, general manager of Union Bancaire Privee . A fine of 8 billion yuan would be less than the estimated profit of 9.6 billion yuan Ant generated in the December quarter.
The investigation into Ant marked the symbolic beginning of a devastating crackdown on the broader Chinese internet industry that wiped hundreds of billions of dollars from the worth of industry leaders from Alibaba to Tencent Holdings Ltd. Allowing the fintech giant to resume business growth would spark hope that Beijing will finally free up its giant private sector, as part of a nationwide effort to revive a sagging economy.
Ant Group did not immediately respond to Bloomberg’s request for comment.
Regulators killed Ant’s 2020 IPO after Ma angered Beijing with a public criticism of financial regulators. The government began cracking down on the private technology sphere soon after, accusing Alibaba of monopolistic behavior before issuing a record fine for the alleged violations.
Even as Beijing lifts Ant’s clutches, years of ruthless scrutiny have reduced the billionaire’s empire to a shadow of its former self.
Ant’s bottom line has eroded since the days it prepared for the world’s largest IPO in 2020, as Alibaba is in the process of splitting into six main businesses, from cloud services to food delivery and logistics. While investors initially welcomed the potential value creation, Alibaba shares have come off their 2023 highs, losing more than $600 billion of their value since the Ant episode began.
The central bank ordered Ant to merge all financial units into a holding company in 2021. She also told the company to open up its payments app to competitors and cut the inappropriate linking of payments with other products, including its loan services.
Market watchers had since waited for the study’s conclusion to gauge Beijing’s stance on China’s sprawling internet sector. Authorities had pledged to halt a crackdown that trapped private sectors from technology to online education, at a time when the world’s second-largest economy is struggling to get back on its feet.
While the latest development may indicate Beijing’s efforts to fulfill its commitments to support the sector, more robust measures may be needed to stabilize investor confidence. Ant is still awaiting the green light from regulatory authorities to review the filing to set up the financial holding company and resume longer-term IPO.
“Ant is a very different company than before with all the restrictions and the valuation should be much lower,” Ling said.
While Ant had a pre-IPO valuation of $280 billion, the myriad of regulations imposed over the past two years mean it’s now worth a fraction of that because it’s now more “fin” than “tech.”
Ma relinquished his control rights over Ant earlier this year, complicating prospects for an IPO in the near term.
Companies cannot list domestically on the country’s so-called A-share market if they’ve had a change of control in the last three years – or in the last two years if they’re listed in Shanghai’s STAR market, which is aimed on new technology companies. For the Hong Kong Stock Exchange, this waiting period is one year.
–With help from Edwin Chan, Zheng Li and Charlotte Yang.
(Updates with ADR premarket trading in third paragraph)
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