September 21, 2023

Ant’s surprise share buyback remains firm with a sharp 75% discount to IPO

By Julie Zhu and Josh Ye

HONG KONG (Reuters) – Ant Group announced a surprise share buyback on Saturday that values ​​the fintech giant at $78.54 billion, well below the $315 billion touted at an aborted 2020 IPO, in a move that some investors might leave after a lengthy regulatory rebuild of the company.

The news came a day after Ant was fined $984 million, which should end a years-long regulatory shake-up for the company and mark a major step towards an end to the crackdown on the country’s internet sector.

Ant said it had proposed to all its shareholders to buy back up to 7.6% of its equity stake at a price that represents a group valuation of about 567.1 billion yuan ($78.54 billion).

That represents a hefty 75% discount to the $315 billion 2020 valuation for what would become the largest IPO in the world had it not been derailed at the last minute by China’s regulators.

“The repurchased shares will be transferred to Ant Group’s employee incentive plans to attract talent. The repurchase proposal will also provide a liquidity option for the company’s investors,” it said.

Ant’s major shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, voluntarily decided not to participate in the buyback, the company added.

Hangzhou Junhan and Hangzhou Junao are the entities that collectively own more than 50% of Ant’s shares on behalf of the company’s executives and employees.

“While Ant is buying back shares at a valuation well below the $150 billion figure in the company’s last fundraising round in 2018, the plan provides some liquidity to existing investors,” said Zhang Zihua, chief investment officer at Beijing Yunyi. Asset Management, which is an investor in Ant’s subsidiary, e-commerce titan Alibaba.

“Liquidity may be more important than valuation for some investors looking to leave.”

He said neither he nor the markets expect the share buyback at this stage.

China’s central bank said Friday that financial regulators will fine Ant and its subsidiaries a total of 7.12 billion yuan.

The imposition of the fine is seen as paving the way for the company to obtain a financial holding license, focus on bolstering growth and ultimately revive its plans for a stock exchange listing.

“China needs to fix Ant’s IPO to restore investor confidence,” said Wang Qi, CEO of China-focused asset manager MegaTrust Investment.

“Any progress here will not only benefit Alibaba, but will also benefit the internet and fintech industry as a whole.”

Founded by billionaire Jack Ma, Ant operates the ubiquitous mobile payment app Alipay in China, as well as consumer lending and insurance product distribution companies, among others.

Ant began a major corporate restructuring in April 2021, which included turning it into a financial holding company that would subject it to rules and capital requirements similar to those for banks.

For the wider tech sector, Ant’s fine is an important step towards ending China’s crackdown on private companies, which began with Ant’s IPO being scrapped in late 2020 and subsequently wiped billions from the market value of several companies.

Following the IPO cancellation and forced restructuring, some of Ant’s global investors have lowered their valuation of the company, with Fidelity cutting it to $68 billion by mid-2021, Reuters reports.

“The buyback price is higher than valuations made internally by many institutions…so I think some institutions will choose to participate in the buyback,” said Hanyang Wang, an analyst at 86Research.

“At the same time, initiating a share buyback indirectly informs investors that the possibility of an IPO recovery in the near term is unlikely.”

On Friday, Chinese authorities also announced fines against two Chinese banks, an insurer and Tencent Holdings’ online payment platform Tenpay.

The People’s Bank of China (PBOC) said most of the prominent problems facing platform companies’ financial businesses have been addressed and regulators would now shift from focusing on specific companies to mainstream general regulation of the industry.

($1 = 7.2205 Chinese Yuan Renminbi)

(Reporting by Julie Zhu, Josh Ye, Brenda Goh, Zhang Yan, and Scott Murdoch; editing by Shri Navaratnam and Kim Coghill)

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