Hong Kong-listed shares of Alibaba Group and Tencent rose on Monday as China’s $984 million fine on Ant Group fuelled investor hopes of an end to a three year-long crackdown on the country’s tech firms.
Alibaba shares closed up 3.2%, beating a 0.6% rise for the benchmark Hang Seng index. Meanwhile, Tencent shares closed up 0.7%.
Jack Ma-founded Ant Group had been under scrutiny since 2020 after Chinese regulators derailed its plans for what was set to be the world’s largest IPO, with a valuation of $315 billion.
The IPO’s shelving marked the start of a wide-ranging regulatory clampdown by Beijing on industries ranging from technology to education.
The move came as Beijing sought to assert its authority over what it deemed to be excesses and bad practices in the private sector stemming from years of runaway growth.
The scrutiny left decades-old firms and startups alike operating in a new, uncertain environment and wiped billions off share prices, ensnaring companies from online retail giant Alibaba to gaming company Tencent and food delivery group Meituan.
The fine on Ant, one of the largest ever for a Chinese internet company, is largely seen as an end to Beijing’s tech crackdown.
Announcing the fine on Friday, the People’s Bank of China (PBOC) said Ant and its subsidiaries had violated laws and regulations in areas including corporate governance, financial consumer protection, payment and settlement business, as well as anti-money laundering obligations.
It said most of the prominent problems for platform companies’ financial businesses had now been rectified and regulators would now shift their focus from focusing on specific companies to overall regulation of the industry.
Besides Ant, authorities also imposed a nearly 3 billion yuan ($414.88 million) fine on Tencent’s online payment platform Tenpay for committing violations in areas such as customer data management.
“We view this announcement a key milestone for a regular, clear, and visible regulatory environment for China’s internet companies,” Huatai Research analysts wrote in a note to clients.
Surprise share buyback
Following the penalty, Ant announced an up to $6 billion share buyback which valued the fintech giant at a 75% discount from the scrapped 2020 IPO.
The Alibaba affiliate said it proposed to repurchase up to 7.6% of its equity interest at a price representing a group valuation of about $78.5 billion.
The buyback plan, which caught investors off-guard, is seen to be aimed at providing liquidity and certainty to investors.
Alibaba, which spun off Ant 11 years ago and has a 33% stake, said on Sunday it was considering whether to participate in the buyback that would transfer shares to an employee incentive scheme.
Ant’s major shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, which collectively hold more than 50% of its shares on behalf of the company’s executives and employees, will not participate in the buyback, it said.
IPO plans likely ‘on hold’
The finalisation of Ant’s penalty is seen as paving the way for the firm to secure a financial holding company licence, lift its growth rate and eventually revive its plans for a stock market listing.
However, analysts are questioning whether Ant will press ahead with a listing in the near future.
“According to the company, the reason for the buyback is providing liquidity to existing investors and attracting and retaining talented individuals through employee incentives,” said Oshadhi Kumarasiri, a LightStream Research analyst who publishes on Smartkarma.
“Ant could have achieved both these objectives through an IPO …This means [an] IPO is essentially put on hold.”
- Reuters, with additional editing by Vishakha Saxena