© Reuters. FILE PHOTO: A banner of an ant group is shown at the World Artificial Intelligence Conference (WAIC) in Shanghai, China, July 6, 2023. REUTERS/Ali Song/File photo
Written by Julie Chu and Josh Yee
HONG KONG (Reuters) – Ant Group on Saturday announced a surprise share buyback that valued the fintech giant at $78.54 billion, far less than the $315 billion touted in an initial public offering that was abandoned in 2020, in a move It may allow some investors to exit after a lengthy regulatory process. Company reform.
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 in ending a 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 collective valuation price of about 567.1 billion yuan ($78.54 billion).
That represents a steep 75% discount to the $315 billion valuation in 2020 of what would have been the world’s largest initial public offering, had it not been for a last-minute derailment by Chinese regulators.
“The repurchased shares will be transferred to Ant Group’s employee incentive plans to attract talent. The repurchase proposal will also provide liquidity option to the company’s investors,” the company said.
The company added that Ant’s major shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, had voluntarily decided not to participate in the buyback.
Hangzhou Junhan and Hangzhou Junao are the entities that collectively hold more than 50% stake in Ant 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 for its existing investors,” said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management. An investor in e-commerce giant Ant Ali Baba (NYSE:).
“Liquidity may be more important than valuation for some investors looking to get out.”
He said neither he nor the markets expect to buy back the shares at this point.
China’s central bank said on Friday that financial regulators will fine Ant and its subsidiaries a total of 7.12 billion yuan.
The imposition of the penalty is seen as clearing the way for the company to obtain a financial holding company license, to focus on boosting growth and, ultimately, to revive its plans to list on the stock market.
“China needs the Ant IPO solution to restore investor confidence,” said Wang Qi, CEO of China-focused asset manager MegaTrust Investment.
“Any progress here is not only beneficial to Alibaba, but also to the internet and fintech industries as a whole.”
Founded by billionaire Jack Ma, it operates China’s mobile payment app Alipay as well as consumer lending, insurance product distribution companies and more.
In April 2021 Ant embarked on a comprehensive restructuring of the business, which included transforming itself into a financial holding company subject to rules and capital requirements similar to those of banks.
For the broader tech sector, the Ant fine represents a major step toward ending China’s crackdown on private companies, which began with the cancellation of Ant’s IPO in late 2020 and then wiped billions off the market value of many companies.
After the IPO cancellation and forced restructuring, some global investors in Ant lowered their valuation of the company, with Fidelity cut to $68 billion in mid-2021, Reuters reported.
“The buyback price is higher than the valuations made by many institutions internally… so I think some institutions will choose to participate in the buyback,” said Hanyang Wang, an analyst at 86Research.
“At the same time, the initiation of share buybacks also indirectly tells investors that the possibility of an underwriting rebound in the short term is unlikely.”
On Friday, Chinese authorities also announced fines against two Chinese banks, an insurance company, and Tencent Holdings (OTC:)’ online payment platform Tenpay.
The People’s Bank of China (PBOC) said most of the prominent problems of platform companies’ financial businesses have been rectified and regulators will now shift from focusing on specific companies to orderly general regulation of the industry.
($1 = 7.2205 renminbi)