China’s troubled Ant Group announced a surprise share buyback on Saturday, valuing the firm at a steep 75% discount from its abandoned IPO in 2020.
Ant said it had proposed to all of its shareholders to repurchase up to 7.6% of its equity interest at a price that represents a group valuation of approximately 567.1 billion yuan ($78.54 billion).
That was well below the $315 billion value it touted three years ago, in what was set to be the world’s largest IPO until it was derailed at the last minute by Chinese regulators.
Ant’s announcement came a day after it was fined 7.12 billion yuan ($984 million) in what is likely to be the end of a years-long regulatory crackdown on the once storied Chinese group.
Industry experts view the fine as a key step towards the conclusion of Beijing’s debilitating clampdown on the country’s once-booming internet sector.
“The repurchased shares will be transferred into Ant Group’s employee incentive plans to attract talents. The repurchase proposal will also provide a liquidity option for the company’s investors,” the group said.
Ant’s major shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, have voluntarily decided not to participate in the repurchase, the company added.
The two entities collectively hold more than 50% of Ant’s shares on behalf of the company’s executives and employees.
Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management which is an investor of Ant’s affiliate, e-commerce titan Alibaba said neither did he nor the markets expect the share buyback at this stage.
“While Ant buys back shares at a valuation much lower than the $150 billion figure in the company’s last fundraising round in 2018, the plan provides some liquidity to its existing investors,” Zhang said.
“Liquidity might be more important than valuation for some investors that look to exit.”
After the 2020 IPO cancellation and a forced restructuring by regulators, Ant saw some of its global investors cut their valuation of the company, with Fidelity lowering it to $68 billion in mid 2021.
“The buyback price is higher than the valuations made by many institutions internally … so I believe that some institutions will choose to participate in the buyback,” said Hanyang Wang, an analyst at 86Research.
“At the same time, initiating a stock buyback also indirectly informs investors that the possibility of a short-term IPO recovery is unlikely.”
Respite for China’s tech sector
Founded by billionaire Jack Ma, Ant operates China’s ubiquitous mobile payment app Alipay as well as consumer lending and insurance products distribution businesses among others.
In April 2021, the group embarked on a sweeping business restructuring, which included turning itself into a financial holding company that would subject it to rules and capital requirements similar to those for banks.
An end to the regulatory scrutiny would pave the way for the group to secure a financial holding company license, focus on bolstering growth, and eventually, revive its plans for a stock market listing.
Meanwhile, for the broader Chinese technology sector, the fine on the group would be a key step towards concluding Beijing’s bruising crackdown on private enterprises, which began with the scrapping of Ant’s IPO and subsequently wiped billions off the market value of several companies.
“China needs to resolve the Ant IPO to restore investor confidence,” said Wang Qi, chief executive of China-focused asset manager MegaTrust Investment.
“Any progress here not only benefits Alibaba, but is also good for the internet and fintech industries as a whole.”
On Friday, Chinese authorities also announced fines against two Chinese banks, an insurer, and Tencent Holdings’ online payment platform Tenpay.
The People’s Bank of China (PBOC) said that most of the prominent problems for platform companies’ financial businesses have been rectified and that regulators would now shift from focusing on specific firms to the regular overall regulation of the industry.
- Reuters, with additional editing by Vishakha Saxena