Ant Group, Chinese Fintech Giant, Prepares for Largest IPO in History

ant group

Ant Group Co., the Chinese fintech giant controlled by Jack Ma, is planning a record-setting IPO. The markets anticipate that Ant’s IPO will exceed the record set by Saudi Aramco’s $29 billion IPO. Onlooker estimate that the dual listing will raise about $35 billion, which would make it the largest IPO in history. It would also propel Ant to have a valuation of over $250 billion.

The technology company filed paperwork to list shares concurrently on both the Hong Kong and Shanghai stock exchanges. Ant is contemplating an even split of share float on the Shanghai and Hong Kong stock exchanges.

One unique aspect of Ant’s IPO plans is that it will not seek to lock in cornerstone investors for the Hong Kong portion. Cornerstone investors are investors that agree to subscribe for a certain number of shares ahead of the IPO. They are a particularly popular feature of IPOs in Asian markets. In this case, Ant is confident that investor interest is so high that securing cornerstone investors is not necessary. However, for the Shanghai portion of the public offering, Ant will invite cornerstone investors to subscribe in advance to large chunks of shares in order to reduce opening price volatility. Cornerstone investors often must hold shares in a given company for at least 6 months following the IPO.

Ant operates Alipay, the world’s largest online and mobile payments platform. Over one billion individuals in China use Alipay. The company seeks to penetrate overseas markets. Alipay has attracted attention and sparked controversy over its facial recognition payment technology. That technology allows customers to simply make purchases by standing in front of point-of-sale (POS) machines equipped with cameras. The machine is able to link the image captured by the camera to an individual’s bank or digital payment account. While it’s incredibly efficient to be able to go to a store without even a mobile phone or credit card, critics have privacy concerns about the technology being deployed by the government to monitor citizens.

The company’s private credit rating system, called Zhima Credit or Sesame Credit, has drawn scrutiny. Zhima combines data collected from the Alipay app, purchasing history from Alibaba and its affiliates, and other factors such as social media interactions. It uses this data to algorithmically derive scores for individuals. The credit scores range between 350 to 950, with a higher score corresponding to better creditworthiness. That score has implications for how easily individuals can access loans and insurance products. Zhima Credit has raised eyebrows for its links to the government’s Social Credit System. Alibaba has openly promoted Zhima as a technology partner of the Chinese Communist Party’s project.

Although Ant’s platform has many parallels to Western payment platforms such as PayPal and Apple Pay, it actually offers a much more expansive range of services. For example, its Alipay app alone not only covers mobile payments, but also offers insurance, credit, and investment products. Ant also has the capability to originate loans that its financial partners almost exclusively undersrite. Its credit business not only is a core part of its overall business, but also provides the company data insights that are useful to other segments of the business. Additionally, Yu’e Bao, one of the world’s largest money-market funds, is also operated by Ant Group.

Ant Group, previously known as Ant Financial Services Group, changed its name this summer to emphasize its focus on technology products and services more broadly. Despite this name change, Ant still generates a large portion of revenues from digital payments. Ant Group’s parent company is Alibaba Group. Alibaba is China’s technology behemoth that often draws comparisons with Amazon and is currently valued at over $200 billion. Alibaba is based in Hangzhou, China, which is home to a number of other Chinese tech heavyweights including Huawei Technologies. Hangzhou is sometimes referred to as the Silicon Valley of China and is known for being a “cashless city” due to its embrace of digital payments.

Ant faces competition from Tencent Holdings, which also operates a large payments network and investing platform. The WePay app is central to Tencent’s payments platform. Despite this competition, Ant has the advantage of being closely linked with Alibaba. Alibaba possess an approximately 33% equity stake in Ant through its subsidiaries and there are many synergies between the parent company and its Ant affiliate.

In 2019, the company reported revenue of $17.7 billion (RMB 120.6 billion). Breaking down those numbers reveals that RMB 51.9 billion came from digital-payments revenue and RMB 41.9 billion derived from credit-technology revenue. Additionally, Ant generates RMB 8.9 billion from its insurance technology business and RMB 17 billion from investment technology.

Foreign investors seeking to get in on the action and buy the IPO shares may be in luck when it comes to the Hong Kong exchange listing. However, Shanghai’s stock exchange rules currently place strict limits on participation from international investors. Market sentiment is in Ant’s favor and it will undoubtedly be an IPO worth watching in the near future.

Ryan Carpenter serves as Attorney and Managing Director of Carpenter Wellington. Ryan advises clients across a broad set of corporate and commercial matters.