FINANCE: Alibaba’s Ant Financial Crawls Towards 2016 IPO

Bottom line: Alibaba’s Ant Financial unit is likely to get a strong valuation with a planned new private placement, and will embark on a series of high-profile moves before making a multibilllion-dollar IPO next year.

Ant Financial eyes 2016 IPO

Alibaba’s (NYSE: BABA) high-profile spat with Beijing is finally starting to subside, paving the way for the company’s affiliated financial unit, Ant Financial, to move into the headlines with word of plans for a major new fund-raising. But anyone holding Alibaba stock shouldn’t get too excited about Ant, which is separate from the listed company and whose rapid rise will only benefit Alibaba founder Jack Ma.

At the same time, other media reports are saying that Internet giant Tencent (HKEx: 700) has formally cleansed its popular WeChat mobile messaging platform of a holiday red-envelope feature from Alipay, Ant Financial’s most valuable asset. That development isn’t a surprise, but it does spotlight one of several major challenges that Ant will face as it tries to carve out a profitable place for itself in China’s fast-evolving financial services sector.

We should begin this Alibaba round-up by quickly noting the latest media reports that cite Jack Ma saying his company has resolved its high-profile spat with the State Administration For Industry And Commerce (SAIC) over rampant piracy on Alibaba’s popular Taobao C2C marketplace. (English article) Earlier headlines this week said Ma had met with SAIC officials to resolve the matter (previous post), and Alibaba’s share price rose for the first time in 5 days as investors welcomed the new tone of conciliation.

With that scandal now fading, Ma is returning to what he does best, namely hyping his companies in a bid to raise their profile and also their market value. Now he’s turning his attention to Ant, which was formed last year as the holding company for Alibaba’s growing portfolio of financial assets including Alipay and its planned Alibaba Bank.

According to the latest headlines, Ant is now in the process of exploring a new private placement that would value the company at around $50 billion. (English article) One report on the placement points out that Ma’s stake in Ant would allow him to retake the spot as Asia’s richest man, a title he briefly lost after Alibaba’s stock lost 14 percent of its value last week.

Such a placement would come ahead of an IPO that could happen as early as next year, probably in Shanghai and possibly concurrently in another offshore site. (Chinese article) In yet another headline, media are reporting that Ant’s planned bank, Alibaba Bank, will launch in May, confirming previous reports from last week. (Chinese article)

The fact that so many Ant-related reports are suddenly in the headlines hints that Ma is quickly putting the SAIC scandal behind him and focusing his efforts on hyping his financial services unit. That’s not too surprising since he wants to try to work the same valuation magic with Ant that he did with Alibaba, though it means we could see him focus less on Alibaba in the months ahead.

Ant is certainly an interesting proposition, as it would become one of China’s first major private financial companies available to investors if it goes ahead with its listing plan. But the company will face plenty of risk in the fast-evolving sector. One of those was on display in the headline that said Tencent has cleansed its WeChat service of a new Alipay red envelope feature designed for the upcoming Lunar New Year. (Chinese article)

This kind of blockage is quite common on China’s Internet between rival companies, and I wouldn’t be surprised to see Tencent gradually freeze out Alipay completely from WeChat. UnionPay, which operates China’s largest financial transaction settlement network, could also try to freeze out Ant as competition grows between that pair. But the biggest risk could be on the regulatory front, since many of Ant’s services currently operate in gray areas that could easily come under government crackdowns or tighter regulation.

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