The Alibaba (BABA) spinoff and fintech Ant Group is planning an IPO in Hong Kong and Shanghai, in what may well be the largest initial public offering in history.
Ant, which operates the Chinese mobile-payments app Alipay, has filed documents for IPOs in Hong Kong and on the STAR Market, Shanghai's one-year-old tech-focused bourse.
This would be the first simultaneous listing on Hong Kong and the Star Market, which launched in July 2019. With tensions between the United States and China at their worst level in half a century, and the prospect of Chinese companies being delisted from U.S. markets by the end of 2021 if they don't comply with U.S. accounting disclosures, Ant Group has nixed any idea of a U.S. listing.
Ant's filing does not specify the price or the timing of the dual listings, saying only that it plans to sell at least 10% of its shares. But it plans to sell at least US$20 billion in stock, which would value the company at US$200 billion, and the IPO could reach as much as US$30 billion if market conditions are right, Reuters reports. The source is three "people with knowledge of the matter," which probably means the investment bankers involved.
Ant's 674-page application to list in Hong Kong, which you can find for bed-time reading here, outlines the company's financial position and business operations. Alipay is China's equivalent of Apple (AAPL) Pay, which together with Tencent's WeChat app account for the vast majority of mobile payments in China. But Ant also holds licenses for most online financial services in China, including online banking, brokerage, insurance, credit rating, credit cards and consumer loans.
The company generated revenue of 72.5 billion yuan (US$10.2 billion) in the first six months of this year, up 38.0% from the first half of last year. With Alipay used by 711 million monthly users, and 80 million merchants, Ant generated a half-year profit of 21.9 billion yuan (US$3.1 billion), more than 10 times the profit from the first half of 2019.
Ant used to have a highly unusual business structure in which it paid 37.5% of its profits to Alibaba every year. That arrangement came after Alibaba co-founder Jack Ma in 2011 controversially transferred Alipay out of the e-commerce company into an entity he controlled, to the anger of existing investors such as Yahoo. Ant and Alibaba simplified that structure in 2018, with Alibaba exercising an option to convert its profit sharing plan into stock. Alibaba now owns 33% of Ant.
Jack Ma controls the company. He owns 34% of a company that controls two companies that own 50.5% of Ant. Three top executives - Ant Chairman Eric Jing, Ant CEO Simon Hu and Alibaba co-founder Jane Fang Jiang - jointly own the remaining 66% of that management company at the top of the ownership tree.
The listing on Hong Kong's stock exchange, which is open to investors globally, is likely to attract the world's largest institutional investors, who can use Ant as a window into China's highly restricted tech market. The Shanghai listing, meanwhile, is likely to attract higher valuations for the stock, appealing mainly to momentum-driven "Mr. and Mrs. Chan" retail investors and domestic fund managers.
Few international investors can access the Shanghai market, where there are tight caps on foreign participation. But stocks there trade at high price/earnings multiples since there are few quality mainland listings, and scant other options where mainland investors can put their money to work.
Ant says it will use the Shanghai money for business development including acquisitions, while it will use the Hong Kong money for its globalization plans and expansion outside China.
Hong Kong used to be a stock market dominated by financials, China-focused industrials and local property developers. But 25.1% of the benchmark Hang Seng Index is now tech, up from just 8.6% five years ago.
Videogame maker Tencent Holdings (TCEHY) led the way with a primary listing in Hong Kong way back in 2004, coincidentally the same year Alibaba set up Alipay. Changes in Hong Kong's listing rules to allow dual-class shares have encouraged secondary listings from U.S.-listed Chinese tech companies, with Alibaba last November followed this June by the US$4.4 billion secondary of e-commerce site JD.com (JD) and the US$3.1 billion offer of videogame maker NetEase (NTES) .
Both JD.com and NetEase went public on Nasdaq. A New York Stock Exchange listing, as held by Alibaba, was seen as the "Ivy League" of public offerings by Chinese companies, with Nasdaq as good as Stanford or MIT in terms of reputation. How that has changed. TikTok's for-now owner ByteDance and the ride-hailing app Didi Chuxing may follow Ant in skipping the United States altogether for their listing plans.
A 2018 funding round valued Ant at US$150 billion. The name has changed from Alipay as a company to Ant Financial in 2014, and finally Ant Group, a moniker it took up in May.
The Hong Kong offering is being underwritten by Citigroup, J.P. Morgan Chase, Morgan Stanley, and the Chinese investment bank CICC. The Shanghai listing is being led by CICC and China Securities.
Alibaba Group Holding held the title of history's largest IPO following its US$25 billion float on the NYSE in 2014. It then followed that up in November with a secondary listing in Hong Kong worth US$12.9 billion.
Alibaba's crown as history's largest IPO was wrested away last December, when Saudi Aramco raised US$29.4 billion with its listing in Riyadh. But the Saudi offering was hardly international, attracting mostly Saudi and Arab investors to the Tadawul bourse, not exactly a hotbed of cross-border trade.
Saudi Aramco pulled out of roadshows in New York and London when international investors showed little interest in the oil driller's US$2 trillion estimated value set by Crown Prince Mohammad bin Salman. It was likelier to arrive nearer a US$1.1 trillion value on global markets.
The Ant Group offer could therefore relegate the Saudi Aramco share sale to its position as a footnote in stock exchange history. Ant itself has declined to comment further on its proposed offering at this stage.