Days after China stifled the largest initial public offering in history, Ant Group Co. assembled its investment bankers at a Hong Kong convention center overlooking Victoria Harbor.
Even though the employees of Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley had just seen the deal of a lifetime evaporate – with $ 400 million in costs – the Ant team had a message full of hope: do not lose confidence. On the big screen were the words: “Start from the heart”.
A year later, with Ant’s $ 35 billion IPO registration officially expiring on Wednesday, that rally’s optimism has faded. Bankers say they have stopped receiving regular communications from the company, and some doubt it will return to the market before 2023. A high valuation estimates that once it hits $ 300 billion, it has been reduced by two-thirds.
More broadly, the crackdown that began with fintech giant Jack Ma has turned into an assault on every corner of the Chinese technosphere as Beijing seeks to end the dominance of a few heavyweights and create an assault on all corners of the Chinese technosphere. “Common prosperity”. The question everyone is asking: when does it stop? If Ant is any indication, not for a while.
“Although the direction is clear for Ant’s overhaul, the implementation is quite difficult,” said Dong Ximiao, chief researcher at the Zhongguancun Internet Finance Institute. “For Ant and his investors, uncertainty remains and the pain is not going to end anytime soon.”
Ant’s forced overhaul runs deep. Its ubiquitous Alipay super-app, a one-stop-shop for the financial needs of a billion users, is on the verge of being fragmented. Its treasure trove of consumer data is to be opened up to rivals for a fee. In the corridors of the administration, there is talk of potentially excluding its lucrative branch of consumer loans from any future IPO. Employee morale has collapsed.
Some staff at the company’s headquarters in Hangzhou said Ant was starting to resemble the traditional banks that founder Ma infamously ridiculed as “pawn shops” at the Bund summit in Shanghai a year ago. Anachronistic regulation, he warned, would stifle innovation in China.
Regulatory compliance has become the priority of a fintech that once rushed to innovate against its competitors at every step, an employee said. Another said some staff believe state ownership in the juggernaut may be the best solution. Authorities have discussed installing a government official in Ant’s management ranks to keep tabs on the company.
Bloomberg spoke to nine bankers, regulators and staff at Ant for this story, all of whom requested anonymity to discuss a sensitive issue. Company officials as well as the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission did not respond to requests for comment. Citigroup, Morgan Stanley and JPMorgan declined to comment.
For now, executives are wondering how to divide the sprawling fintech into separate businesses with state-backed partners, according to people familiar with the plans. While central bank-led regulators have issued broad guidelines, they have lacked specifics, leaving Ant to proceed through trial and error, people said.
As part of the overhaul, Ant has already increased its capital base to 35 billion yuan ($ 5.4 billion) and is poised to build firewalls in an ecosystem that once allowed it to direct traffic in the city. ‘Alipay to services such as wealth management, consumer loans, etc. -require local and delivery services. Its profit slipped 37% in the March quarter from the previous three months. Prior to the crackdown, Ant’s profit increased more than eightfold in 2019. Net profit for the first half of 2020 exceeded the previous year’s total.
Some of the initiatives Ant has completed or planned:
- He obtained approval to consolidate the loan arms Jiebei and Huabei into a new consumer credit unit with 8 billion yuan in registered capital. Ant owns a 50% stake in the company alongside state-backed investors. Capital base caps total loans at 266 billion yuan, a fraction of the 1.7 trillion yuan granted by Ant in June 2020
- Authorities want Ant to create separate lending industry app, separating it from Alipay, says person familiar with the matter
- Alipay users must agree to new terms on sharing credit history with central bank before resorting to Huabei or Jiebei loans
- To separate information about consumer transactions from its other offerings, Ant will move the data to a new credit rating joint venture, formed with state-owned companies, of which Zhejiang Tourism Investment Group Co. Ant will hold a 35% minority stake. in the joint venture. Once approved by the central bank, the company will allow competitors to check borrowers’ creditworthiness for a fee, much like other credit rating companies in China.
- Assets under management of its Yu’ebao money market fund – once the world’s largest – have fallen by nearly a third since the end of last year to reach 815 billion yuan in June.
The to-do list for Ant and rivals such as the fintech operations of Tencent Holdings Ltd. keeps getting longer. Beijing’s focus has shifted from controlling its explosive online lending to more complex tasks such as reducing the dominance of their payment apps (which together control over 90% of mobile transactions), opening up their platforms and consumer data protection.
For starters, e-commerce giant Alibaba Group Holding Ltd. started adding Tencent’s payment system to some of its applications, breaking the monopoly that Alipay had long enjoyed. Alipay and WeChat Pay have yet to open their ecosystems to competitors as regulators have requested, while China’s central bank is pushing consumers to adopt its own digital yuan.
The government has also offered to form a joint venture with local tech giants that would oversee the lucrative data they collect from hundreds of millions of consumers, people familiar with it said in March.
The myriad of restrictions means Ant is only worth a fraction of what it was before, according to some of its early Wall Street supporters. Fidelity Investments reduced its valuation estimate for at least the second time this year to around $ 78 billion as of June 30. Others are more bullish: BlackRock Inc. values the company at $ 174 billion and T Rowe Price Group Inc. at $ 189 billion. Ant recovered a pre-currency valuation of $ 280 billion before its IPO ended.
Chairman Eric Jing, who has also served as a general manager since Simon Hu’s sudden departure in March, vowed that the company would eventually go public. Still, staff are losing hope he can pull it out anytime soon.
A former Data employee who recently left said his departure was one of many. Ant’s stock options are no longer enough to retain staff or attract new talent, people familiar with it said. Morale took a further hit after Ant revamped its repurchase program of existing restricted stock options from employees, making it more difficult for them to retire shares vested at an already diminished value, said the people.
Ant’s director of human resources responded to disgruntled internal staff on Monday, saying Ant would consider other ways to meet their cash flow needs.
Admittedly, many employees stuck around. Ant streamlined the process for promoting junior staff earlier this year, they said. The ever-growing crackdown on the tech industry has also deterred workers from getting off the ship. Almost all of the major players – including Bytedance Ltd. and Didi Global Inc. – traditionally viewed as desirable employers, come under intense scrutiny.
Bankers who a year ago bet the IPO would be done this year or next, now say 2023 is more likely. Regulatory obstacles remain. Several Shanghai Stock Exchange officials have been questioned for their role in Ant’s accelerated sale process, according to two people familiar with the matter, as part of an IPO investigation. And no regulator would dare to give the green light to a listing unless President Xi Jinping himself is on board.
For Ant, his investors, and his bankers, all of this means more delays in launching their once promising IPO.
You have to “come to a point where the government becomes very comfortable with Internet companies and the behavior of e-commerce is very much like a state entity,” Vincent Chan, Chinese strategist at Aletheia Capital, said on Bloomberg Television. . “It will be a very long way to go. “