Will it take Jack Ma's exit as a part owner of Alibaba Group Holding (BABA) and its Ant Group fintech spinoff to remove the overhang from BABA stock? And to enable Ant's mooted initial public offering to go ahead? That seems to be the case.
Ant is negotiating its path ahead with regulators. One fork would see Ant founder Ma divest his stake in Ant and surrender control, according to Reuters on Monday citing sources close to the company and "familiar with regulators' thinking."
Ma has been the figurehead for Alibaba and Ant. Now he is its lightning rod. The Chinese Communist hierarchy has flashed a flurry of bolts down that pole, and Ma may need to leave to ensure the companies can proceed shock-free.
Alibaba shares fell 1.5% on Monday in Hong Kong, on a day the benchmark Hang Seng index rose 0.5%. The CSI 300 index of the largest mainland-listed companies put on an impressive 2.4% in Shanghai and Shenzhen.
Since October 2020, when Ma gave a fateful speech to a business conference in Shanghai, Alibaba shares have fallen 22.1%. They continue to drift lower despite Ma's withdrawal from public life - and the fact that he "retired" from any executive role at Alibaba in September 2019.
The Communist Party is angry enough at Ma, and scared enough at the influence that his companies have developed, that they are disrupting China's best-known digital brand. In November, President Xi Jinping himself reputedly intervened to prevent the world's largest initial public offering, Ant's US$37 billion flotation in Hong Kong and Shanghai, from taking place.
China's financial regulator, the China Banking and Insurance Regulatory Commission, and the central People's Bank of China have met with Ma and Ant separately in the first quarter, Reuters reports, with Ma's exit from the company discussed.
Ant has denied this. "Divestment of Mr. Ma's stake in Ant Group has never been the subject of discussions with anyone," Ant said in a statement.
Ma owns 34% of a company, Hangzhou Yunbo, that in turn controls 50.5% of Ant Group via two partnerships, according to the prospectus for its cancelled IPO. Three other insiders own the other 66% of the controlling company. The prospectus makes clear that Ma can dictate the decisions of that group, effectively giving him ultimate and complete control.
Ma owned 4.8% of Alibaba after an US$8.2 billion share sale last year. But the 38-member Alibaba Partnership controls a majority of the board seats on the company. Ma is still one of six directors of that partnership, according to the company's Web site, giving him substantial behind-the-scenes power.
All other parties, from Alibaba through the government, are declining to comment. Aside from a carefully calibrated visit in January to a school in rural China, at a time no pupils were present, Ma has not been seen in public since he ran into trouble late last year.
This is a man who loves the limelight, who has appeared alongside Cantopop diva Faye Wong to sing a duet during an Alibaba livestream, and who belted out Can You Feel the Love Tonight? in full glam-rock flame-leather jacket, silver wig and shades to celebrate Alibaba's 10th anniversary. His absence is akin to Elon Musk's sudden silencing, and disappearance.
Last October, Ma took his rock-star persona on stage at a financial summit in Shanghai, albeit in a suit rather than a leather jacket. He took the risky step of criticizing in public the Chinese banking system, and by implication the Communist Party that sits atop it. Ma said Chinese big banks had a "pawnshop mentality," while Ant was extending credit to consumers and companies with little other access to borrowing.
Many small businesses complain that large Chinese banks favor state-owned enterprises, which they give their best lending rates. Entrepreneurs often struggle to get mainstream backing for their ideas. So Ma's message is hardly revolutionary. His mistake was to make his criticism so public.
That coupled with Ma's jetsetting lifestyle, in which he met with heads of state, kings and, yes, Bill Gates made the Communist hierarchy uncomfortable. When Ma took the stage in Shanghai, knowing full well that regulators were working on new rules to govern fintech companies such as Ant, and were in attendance, they decided they had had enough. It appeared he was attempting to shape their new rules through the court of public opinion.
One of the Reuters sources said Ant hopes Ma's stake could be sold to existing Ant investors or to Alibaba without involving any external third parties.
On the regulatory side, a second source said Ma would have to sell out his stake to an entirely different and unrelated entity. The obvious candidate would be a Chinese state-owned enterprise or one of its Big Four banks.
Of course, any of this still needs to be cleared by Beijing. When it comes down to it, the Communist Party hierarchy do not want any company being powerful enough that it could challenge the party, or direct how the party shapes corporate policy.
Ant Group, which operates the ubiquitous Alipay e-payments app, already agreed last week to restructure its operations, turning itself into a financial-holding company under the auspices of banking regulators and the central bank. New capital requirements will force it to drastically cut back its consumer-lending business.
Two days prior to the restructuring announcement, Alibaba had been slapped with a record C¥18.2 billion (US$2.8 billion) fine for engaging in anti-competitive behavior. Alibaba shares jumped 8.5% on word of that news, as I explained last week, because Alibaba itself wasn't ordered to restructure, and can move on.
The fine, 4% of revenue when it could have been as much as 10%, seems just large enough to act as a significant deterrent to other companies while remaining manageable for Alibaba to pay out of "petty cash," the cash balance of C¥339 billion (US$51.7 billion) it had as of the end of last year.
Although he has resigned as executive chairman of Alibaba, and is one of 18 co-founders of the company, Ma remains the face of the company in many people's minds. He is the lynchpin and charismatic figurehead, the guy who pulled those friends and colleagues together in his apartment in his hometown, Hangzhou, back in 1999. Alibaba was at first purely a B2B marketplace, linking Chinese manufacturers with distributors. When eBay entered China in 2003, it created the consumer-to-consumer Taobao Marketplace, "Taobao" meaning "Digging for Treasure."
Ma established Ant's flagship app, Alipay, in 2004 as a way to hold funds in escrow so buyers and sellers on Alibaba's Taobao e-commerce site could transact with confidence. Ma controversially seized control of Alipay from Alibaba, rechristening it Ant in 2014. Alibaba has ultimately ended up owning one-third of Ant.
The surge in e-commerce left Ant with huge temporary cash balances. It processed US$17 trillion in transactions for the year through June, making it the largest processor of payments in the world, above Visa (V) or Mastercard (MA) . Its microloans, mainly for consumer-goods purchases, make it essentially the largest consumer lender in China, responsible for around 10% of consumer credit in 2020.
The Chinese Communist Party may at first have been unaware quite how large and powerful Ant had become. It is now intent on weakening Ant's hold over China's financial system. It is pulling once-freewheeling Ant and Alibaba under state direction and control, through regulation and restructuring.
Where that leaves Jack Ma's ownership stakes and carefully crafted control, itself structured through layers of voting rights and controlling companies, is now being hashed out behind the scenes. Ma's retirement from executive roles hasn't been enough to satisfy China's leaders. What kind of ownership departure he's forced or allowed to make remains to be seen.