Ant Group cites US risks in filing for Hong Kong, Shanghai IPO

Billionaire Jack Ma’s Ant Group warned that rising U.S.-China trade tensions threaten its business as it gears up for an initial public offering that could give it a valuation as big as Bank of America Corp.

The Chinese e-commerce and fintech giant highlighted the geopolitical tensions in its filings for a dual IPO in Hong Kong and Shanghai late Tuesday, citing possible U.S. export controls and trade sanctions as key expansion risks.

Unlike Chinese tech firm such as Ma’s Alibaba Group Holding Ltd., Ant decided against listing in the U.S. amid increased scrutiny by the Trump administration of Chinese companies, and warnings to U.S. endowment funds to offload their stakes in U.S.-listed Chinese businesses.

“The greater concern is that if the U.S. passes a sanction of some sort, the other markets in India, Southeast Asia where Ant is looking for growth could be affected,” said Mark Tanner, managing director of Shanghai-based consultant China Skinny. He added that Ant and Alibaba have side stepped a lot of the risks that its Chinese competitors like Tencent Holdings Ltd. and Bytedance Ltd. are facing.

The simultaneous listing could mark one of the biggest debuts in years, topping Saudi Aramco’s record $29 billion IPO. The firm is targeting a valuation of about $225 billion, based on an IPO of about $30 billion if markets are favorable, people familiar with the matter have said. That would match Bank of America’s market capitalization, and be more than twice the size of Citigroup Inc. Among U.S. banks, only JPMorgan Chase & Co. is bigger.

Ant will use the proceeds to expand cross-border payments and enhance its research and development capabilities, according to the filing, which didn’t provide a share price range or the amount it intends to raise.

The Hangzhou-based company will issue at least 10% of its total capital in new shares, according to the filing with the Shanghai exchange. Ant generated 72.5 billion yuan ($10.5 billion) in revenue in the first half, after full-year sales of 120.6 billion yuan in 2019, it said. The firm posted a profit of 21.2 billion yuan in the first half of this year.

The crown jewel of the sprawling Alibaba empire, Ant has been accelerating its evolution into an online mall for everything from loans and travel services to food delivery, in a bid to win back shoppers lost to Tencent Holdings Ltd. With data from a billion users of its Alipay app at its back, Ant is pushing broadly into financial services, delivering technology such as artificial intelligence, robo investing and lending platforms.

Alibaba is Ant’s largest shareholder, with a 33% stake. Hangzhou Junao, an entity that is owned by key Ant and Alibaba executives, owns 20.66%, while Hangzhou Junhan, which holds shares on behalf of Ant employees, owns a 29.86% stake, according to the filing.

Ma holds 50.52% voting rights in Ant, via his control over the shares held by Hangzhou Junhan and Hangzhou Junao. Ma has said that he intends to reduce his economic interest in Ant to no more than 8.8% in the future, and he intends to donate 611 million shares to charity, according to the filing.

Ant picked Citigroup, JPMorgan, Morgan Stanley, and China International Capital Corp., for its Hong Kong offering. Credit Suisse was hired as a joint global coordinator for the Hong Kong deal, according to people familiar. Representatives for Ant and Credit Suisse declined to comment.

CICC and CSC Financial Co. will lead the Shanghai portion. The company said it would raise 48 billion yuan in Shanghai. That figure is a placeholder as companies typically exceed that indication in their offerings.

Alipay Transactions

The preliminary IPO filing shed some light on Ant’s reach. Alipay’s total transaction volume reached 118 trillion yuan in the 12 months ended in June. The app had more than 1 billion users and 711 million monthly active users. More than 80 million merchants used Alipay to conduct business and Ant partnered with more than 2,000 financial institutions.

The company is also seeing a shift in its revenue structure, generating a greater contribution from technology services fees. The contribution from digital payments and merchants services fell 7.1 percentage points to 35.9% in the first half from the end of last year.

Its digital finance technology platform, which includes services credit, investment and insurance tech operating under the brands including Huabei, Jiebei and Yu’E Bao, accounted for 63.4% of revenue in the first half, up from 56.2% at the end of 2019.

The sale offers a potential windfall for a raft of U.S. private equity firms, including Silver Lake Management LLC, Warburg Pincus LLC and Carlyle Group Inc., which all invested at least $500 million in the firm’s latest 2018 funding round, people familiar with the matter have said. Credit Suisse Group AG also put in $100 million.

Ant’s IPO helps Hong Kong Exchanges & Clearing Ltd., which is seeing a renaissance of tech listings after it relaxed rules in the wake of losing China’s biggest tech firms—including Alibaba—to New York. Alibaba returned with a $13 billion secondary listing last year in Hong Kong.

Like Alibaba, Ant has hit the brakes on its U.S. expansion as political and trade tensions between America and China have escalated. Ma said in 2018 that his promise to create 1 million U.S. jobs was impossible to fulfill because of the trade tensions.

Instead, Ant has focused it offshore ambitions on building its presence in the rest of Asia, working with nine payment startups including the owners of Paytm in India and GCash in the Philippines.