Ant Group made an unexpected announcement on Saturday regarding a share buyback, which values the fintech giant at $78.54 billion. This valuation is significantly lower than the $315 billion estimated during the abandoned IPO in 2020.
The purpose of this buyback is to allow certain investors to exit following a comprehensive regulatory restructuring of the company.
The announcement comes shortly after Ant Group was fined $984 million, which is expected to bring an end to the prolonged regulatory scrutiny that the company has faced. This fine is seen as a crucial milestone in the overall crackdown on the internet sector in the country.
Ant Group has put forth a proposal to repurchase a maximum of 7.6% of its equity interest from all its shareholders. The proposed price for this repurchase amounts to a collective valuation of approximately 567.1 billion yuan ($78.54 billion).
This valuation reflects a significant discount of 75% compared to the $315 billion valuation in 2020, which was originally set for the world’s largest initial public offering (IPO) before being halted abruptly by Chinese regulators.
Ant Group stated that the repurchased shares will be allocated to its employee incentive plans as a means to attract talented individuals. Additionally, the repurchase proposal aims to offer liquidity options to the company’s investors.
Ant Group has stated that its major shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, have voluntarily chosen not to participate in the share repurchase.
Together, these shareholders represent a majority ownership stake in Ant, holding over 50% of the company’s shares on behalf of its executives and employees.
Ant Group’s Strategic Share Buyback
Zhang Zihua, the Chief Investment Officer at Beijing Yunyi Asset Management, which is an investor of Ant’s affiliate Alibaba, commented that while the share buyback by Ant is at a much lower valuation compared to the $150 billion figure from the company’s previous fundraising round in 2018, the plan still offers some liquidity to the existing investors.
Some investors prioritize liquidity over valuation when considering an exit strategy,” highlighting the importance of liquidity in certain investor decisions.
The announcement of the share buyback took both market observers and Zhang Zihua by surprise, as they did not anticipate such a move at this particular stage.
In a recent development, China’s central bank declared that Ant and its subsidiaries would face a combined fine of 7.12 billion yuan.
This penalty is viewed as a step towards Ant obtaining a financial holding company license, strengthening its growth, and eventually reviving its plans for a stock market listing.
Wang Qi, CEO of the China-focused asset management firm MegaTrust Investment, stated that resolving the Ant IPO is crucial to restore investor confidence, benefiting not only Alibaba but also the broader internet and fintech industries.
Ant, founded by billionaire Jack Ma, operates the widely used mobile payment app Alipay in China, along with other businesses such as consumer lending and insurance product distribution.
In April 2021, Ant initiated a comprehensive business restructuring, transforming itself into a financial holding company subject to bank-like regulations and capital requirements.
The fine imposed on Ant marks a significant milestone in China’s ongoing efforts to tighten control over private technology companies. This crackdown began when Ant’s planned IPO was canceled in late 2020, resulting in substantial declines in the market value of several companies.
After the initial public offering (IPO) was canceled and regulatory-mandated restructuring took place, international investors reevaluated their assessment of Ant’s worth. For example, Fidelity, as reported by Reuters, lowered its valuation of the company to $68 billion in the middle of 2021.
It is anticipated that some institutions will choose to participate in the buyback. The initiation of a stock buyback also implies that a swift recovery of the IPO is unlikely in the short term.
The People’s Bank of China (PBOC) stated that most of the major issues concerning the financial operations of platform companies have been addressed. Consequently, regulators will now shift their focus from specific firms to the broader regular regulation of the industry.