While Hong Kongers wait in trepidation for rapacious "locusts" to arrive from across the mainland border after China scrapped compulsory quarantines as of Sunday, the business world is focused here on Monday on another insect altogether: Ant Group.
Alibaba Group Holding ( (BABA) and HK:9988) co-founder and figurehead Jack Ma over the weekend said he would surrender control of Ant. It's a necessary move if the company is to extricate itself from the pressure applied by the Chinese Communist Party that led to the scrapping of Ant's planned world-record US$37 billion initial public offering in November 2020.
The decision frees up unlisted Ant to march forward, potentially toward a Wall Street listing. Alibaba shares led Hong Kong stocks in gains on Monday, leaping 8.7%, the best performance in both the benchmark Hang Seng Index and its Hang Seng Tech Index counterpart.
Ant, like many Chinese companies set up by entrepreneurs, has a complex holding structure that consolidates power in the hands of the founder. Essentially, Jack Ma has been able to control 53.5% of Ant's voting rights through a parent company and its two holding company subsidiaries even though Ma's ownership stake totals 34%.
Following the agreement inked on Saturday, the three other owners who had given over their voting power to Ma will stop doing so. Ant CEO Eric Jing, former Ant CEO Simon Hu and Alibaba co-founder Fang Jiang will end that agreement, with Jing and four other top Ant executives transferring equity into the holding company so they each have a 20% stake.
Effectively, the two holding companies will split and will vote separately on decisions affecting Ant. Ma will end up owning 20% of one of the holding entities alongside four other investors. That company will own 31.0% of Ant. The other holding company held by CEO Jing's executive team will own 22.4% of Ant. Outside investors hold the remaining 46.5%.
The bottom line: Jack Ma no longer controls Ant. It still has a complex holding-company structure, but let's leave that for now.
As an indication of Ant's intentions to attract investors globally, the company released an English-language statement on the changes here. You can see the holding company structure mapped out.
In making these changes, Ant also increased the number of independent directors to four, or half the total board seats. It plans to add a fifth independent board member so that independents account for the majority of directors. It also set up board committees on risk management, consumer rights protection and sustainable development.
"No shareholder will, alone or jointly with another shareholder, have the power to control the outcome of Ant Group's general meetings," the statement notes. "No shareholder will have the power to nominate the majority of Ant Group's board of directors. Therefore, no shareholder, alone or jointly with other parties, will have control over Ant Group."
Ma's move to step back follows hot on the heels of an approval that, as I outlined last week, allows Ant's consumer lending subsidiary to take on new investors and increase its coffers for expansion. The regulatory decision was already evidence of thawing attitudes among regulators toward Ant in particular and the tech sector in general.
The charismatic Ma has been the "Elon Musk of China." Or maybe Elon is the Jack Ma of the West. Either way, neither is abashed about a little publicity. Ma is fond of dressing like a pop star, crooning ballads on stage during Alibaba's showbiz extravaganzas and mingling with heads of state on his overseas trips. Or at least, he was.
All that came crashing to a end after Ma criticized the Chinese banking system at a Shanghai conference in October 2020, with China's top banking brass and financial regulators in attendance. It was the last straw for Chinese President Xi Jinping, with the Communist leadership already frustrated that Ma was powerful enough to effectively conduct his own foreign policy and wield great tech power, as well as dominate public opinion. Two days prior to the planned listing, Xi personally canned the Ant IPO, which regulators and exchanges had already approved.
It became clear Ma was a lightning rod. I raised the issue of whether Ma would need to sell out of Ant and/or Alibaba in a column in April last year.
Ma has now disappeared from the limelight, stepped down from all executive roles and surrendered control. He has fallen in line. He has been living in Tokyo as well as traveling to the United States, Europe and Israel, we found out in November.
What started as an attack on Ma's business interests expanded into a quest by Xi and Beijing for "common prosperity" while taking Big Tech in China down a notch. That goal largely has been accomplished, and Ant has reformed its operations and structure as ordered by regulators.
But the dire state of the Chinese economy, suffering through the stop-start recovery that was so often ruined by China's zero-Covid strictures, means the Beijing leadership has also changed its tune on the business sector. It needs private business. It needs Ant and Alibaba. Dare I say it, it needs Jack Ma -- as a quiet investor, watching proceedings, lending his insights and considerable capital, rather than orchestrating the operations of Ant or Alibaba anymore.
