Background in a nutshell
During Q4-2014, the booming Chinese third-party online and mobile platform Alipay, owned by the giant Ali Baba, changed its brand to Ant Group Services. The company grew up to be so successful in China that became the largest phone-based payment platform globally, even larger than the well-positioned PayPal in 2013, before the re-branding. (Russell, 2017).
By 2016, Ant Group Services had raised $4.5 billion in funding from investors such as China Investment Corp (CIC), China Development Bank Capital, CCB Trust, Primavera Capital Group, China Life, and China Post Group (Wu, 2016).
In 2017, an essential milestone for Ant Financial was the acquisition of Money Gram for $880 million, which opened the doors of the American market to the Chinese empire, with a revenue of $1.4 billion in 2015 (Russell, 2017).
Path to the dream IPO
One of Ant Financial’s premises in 2018 was that banks should not be scared of this monster, instead consider themselves as customers of this new empire. It might seem simple, considering that one of the significant factors on Ant Financial’s game was to overturn the image of an unfair player. The industry saw a big machine that came to steal the business of credit card transactions using their online platform. Still, instead, Ant Financial intended to build trust among banks and other financial institutions by sharing with the industry a faster and more secure infrastructure for onsite (retail) and online payments.
Convincing investors and stakeholders on all ends of the financial spectrum did not take much. In the future, the convenience and benefit of charging fees per transaction instead of periodical charges and, of course, to obtain all the know-how on risk management and anti-fraud strategies were crucial to decide to support the new giant. This way, the near $14 billion Ant Financial had received for a decade, by June 2018, did not scare the financial industry. On the contrary, banks learned to benefit from this prodigy. In a time when the government of China preferred to spread the risk instead of concentrating it, with 870 million users of the online payment system and close to 256 thousand transactions in a given year reached a valuation of $150 billion, which make firms such as Goldman Sachs and Morgan Stanley look like dwarfs. (Bloomberg, 2018)
Roadblocks
In 2020, Jack Ma, head of Alibaba and co-funder of Ant Financial, is on the verge of a record-breaking IPO by raising 34.4 billion dollars. Today, the IPO is on hold by the regulators, apparently due to the uncontrollable size. It is not a secret that the Chinese government prefers to keep control of industries. Nonetheless, it seems that Ma’s provocative speech, naming traditional Chinese banking antiquated, scratched some itches among the Chinese elite. These situations have caused speculation effects and reactions in the market by dropping the share value in firms like Alibaba (Alibaba Group Holding. ADR) from $310 down to almost $280. Same for the Hong Kong Stock Exchange, where prices dropped nearly 12 points. After this drastic drop, Ant Financial apologized to investors and promised to accept regulation and adapt to the policy. Today, Ant Financial Group leaders are putting together their next strategy to re-gain the trust of their shareholders and win their approval. Also, very important, Ant Financial needs to work on a plan to obtain government regulators’ confidence to go public.
Stay tuned to our blog as we, at Estrategia Financiera y Tributaria will continue breaking down the events around this unique IPO to maintain you informed in the upcoming weeks.
References:
Bloomberg News contributors (2018) Ant Financial Is Too Big to Ignore – Bloomberg Businessweek (10), pp. 1-3.
Russell, J. (2017) Alibaba’s Ant Financial is buying MoneyGram for $880M to expand its global presence – Tech Crunch [online] Available at https://techcrunch.com/2017/01/27/alibaba-ant-financial-moneygram/ Accessed on November 11, 2020
Wu, K. (2016). 5 Things to Know About China’s Ant Financial – The Wall Street Journal [online] Available at https://www.wsj.com/articles/BL-263B-7444. Accessed on November 9, 2020