Ant Group, formerly Ant Financial, has this week filed for an IPO that may raise a record $30bn, in what would be the biggest IPO in history, usurping the Saudi Aramco IPO which raised $29.4bn in 2019. With terms still very much to be confirmed, the Chinese technology services company is expected to be valued between $200bn and $300bn, thus yielding a record amount of raised capital in an IPO.
Ant Group is expected to offer at least 10% of shares in a dual listing on the Shanghai and Hong Kong Stock Exchanges, with many estimating this figure will be closer towards 15%. The purpose of the listing is clear, with 40% of the capital raised being channelled into research and development, 30% used to expand the user base and product offerings, and 10% to build Ant Group’s international business. Ant Group officials are expected to meet investors in the coming days to determine the exact pricing and size of the offering, with analysts believing the dual listing could come as early as October.
The beneficiaries of the Ant Group dual listing are the private equity firms which invested in the company, along with the US banks handling the IPO in Hong Kong and Shanghai, which include Citigroup, JP Morgan Chase, and Morgan Stanley. These banks are poised to share at least $300m, approximately 1.5% of the IPO, as is the norm in Hong Kong. How this is distributed between the beneficiaries will ultimately depend on the finer details of the IPO and how the offering is divided between Hong Kong and Shanghai. This is set to result in the largest fee pool from an Asian deal (outside Japan) since the $408m earned in AIA Group’s $20.5bn Hong Kong listing in 2010. The Ant Group IPO contrasts a declining trend in deal volumes and fees, with Morgan Stanley’s investment banking bonus pool reducing by 9% in Asia last year.
Year-on-year revenue growth of 41% has propelled Ant Group’s net profits to $2.6bn last year, with this figure being released in the listing documents this week. David Dai, analyst at Bernstein Research, suggested Ant Group is likely to trade at a similar 30x multiple as competitors Tencent and Visa. Ant Group revenues are predominantly reliant on Alipay — a mobile payments platform used monthly by more than 700 million people and 80 million businesses in China. The Alipay platform is also used to invest in mutual funds, buy insurance, and pay bills, providing an easier way for consumers and businesses to make payments and invest savings without having to go to the bank. Alipay provides credit in the form of small loans to consumers and small businesses, earning a service fee from the lender which is calculated as a percentage of their loan balance. The revenue from this lending service increased 87% year-on-year and was Ant Group’s largest revenue driver in the first half of 2020 at 35%, with nearly 500 million customers taking out loans via the Alipay platform in the past 12 months. Alibaba, owner of a 33% equity stake in Ant Group, has increased the aggregation of all of its services into the Alipay “superapp”, having recognised the consumer benefit of having multiple financial services and ecommerce platforms in the same location.
Alipay was launched in 2004 as a service for shoppers on Alibaba’s ecommerce site. The role of Alipay has since transformed, as the company became a key player in China’s financial services sector. With this, regulators in China have become increasingly concerned about the role the company plays in the financial system. Consequently, since 2017 the company has undergone a transformation to rebrand the company as a technology services company rather than as a financial services company, demonstrated by the change of name from Ant Financial to Ant Group this summer. The fees that Ant Group earned last year by matching users with financial firms’ loans, through its wealth management services, and insurance offerings, contributed 63% of its total revenue in the first half of the year, up 44% from 2017. Therefore, as digital payments and the sheer volume of transactions, $17tn in mainland China and roughly $90tn internationally, reach market saturation, the business is looking to increase its revenue from technology services.
Ant Group’s Alipay faces increasing pressure from the Tencent-owned WeChat in the Chinese third-party payments market, with Alipay’s market share falling from 75% in Q1 2015 to around 50% in Q1 2020. The competitive advantage of WeChat is that it offers the ease of switching between messaging on the app and mobile payments. This allows for even quicker transactions in a country which is becoming increasingly dependent on its mobile payments system. Alipay, however, remains the monopoly payment service on Alibaba’s ecommerce platforms and have established themselves as the market leader in online commerce payments.
Another risk the business faces is how their aims for international expansion are affected by the ever-increasing Sino-Western tensions. Ant Group had to roll back the pledge made by Jack Ma of creating 1 million jobs in the US, stating it was now “impossible” to achieve. In January 2018, the US also blocked Ant Group’s attempt to buy MoneyGram, a US money transfer company, in a $1.2bn deal, citing national security concerns.
With the dual listing located away from the western financial hub of Wall Street, this significantly high-profile IPO could signal the beginning of more Chinese firms seeking alternatives to the New York Stock Exchange, particularly in industries subject to greater regulations such as tech. The uncertainties and risks for firms listing in New York are rising, with the US Senate passing a bill in May 2020 to delist companies that do not comply with audits. The US Nasdaq has also stated it would tighten regulations for companies that want to list. The dual listing of Ant Group in Shanghai and Hong Kong means that US investors will not be able to purchase shares of the company and Bruce Pang, head of macro and strategy research at China Renaissance Securities, believes that “US investors will lose the opportunity to invest in the growth of China’s new economy sectors”. What is certain is that the rising geopolitical tensions between China and the US are impacting the localisation of major deals in investment banking, not only in terms of mergers and acquisitions but also public listings.