Alibaba Group and Tencent shares in Hong Kong experienced a significant increase in value after China imposed a large fine on Ant Group, the company founded by Jack Ma. This penalty indicates a potential end to the regulatory crackdown on China’s technology sector. As a result, Ant Group, an affiliate of Alibaba, has announced a share buyback that values the fintech at a 75% discount compared to its abandoned IPO plan. This move aims to provide liquidity and certainty to investors.The suspension of Ant’s initial public offering (IPO) in late 2020 marked the beginning of a broader regulatory clampdown by Beijing, which resulted in uncertainty and share price declines for companies like Alibaba, Tencent, and Meituan. In addition to the fine imposed on Ant, Chinese authorities also fined Tencent’s payment platform, Tenpay, for violations in customer data management. However, the People’s Bank of China has stated that most of the financial issues troubling platform companies have been addressed, and regulators will now shift their focus to overall industry regulation.
This development is considered a crucial milestone in establishing a clear and visible regulatory environment for China’s internet companies. As a result of this news, Alibaba’s shares rose by 3.2% and Tencent’s shares rose by 1.5%, surpassing the broader index’s 0.8% increase. Alibaba, which holds a 33% stake in Ant, is contemplating participating in the share buyback, which would transfer shares to an employee incentive scheme.
Ant Group’s proposed buyback aims to repurchase up to 7.6% of its equity interest, valuing the group at approximately $78.5 billion, significantly lower than the $315 billion valuation before the IPO was halted by regulators. Ant and its subsidiaries were found to have violated laws and regulations in several areas, resulting in a substantial fine. The finalization of Ant’s penalty is expected to pave the way for the company to obtain a financial holding company license, boost its growth rate, and potentially revive its plans for a stock market listing.
However, analysts have expressed doubts about whether Ant will proceed with a listing in the near future, as the buyback achieves the objectives of providing liquidity to existing investors and attracting talented individuals through employee incentives, which could have been accomplished through an IPO.
