Alibaba takes 33% stake in Ant Financial
China’s Alibaba is redrawing its relationship with its payments affiliate Ant Financial, jettisoning a profit-sharing arrangement in favour of a direct equity stake and paving the way for the long-awaited listing of the owner of the Alipay app.
No cash will change hands. Instead Alibaba will swap its intellectual property rights related to Ant for a 33 per cent stake in the company under a formula agreed at the time of Alibaba’s own monster initial public offering listing in 2014.
Alibaba, founded by former English teacher Jack Ma, will also give up the royalty payments it receives from Ant Financial. Those payments amounted to 37.5 per cent of Ant’s pre-tax profit and were worth Rmb2,086m ($330m) in Alibaba’s last financial year.
Joe Tsai, Alibaba’s vice-chairman, said Ant’s profits were volatile, so the deal would make his company’s results more stable.
In the last quarter, Ant was aggressively courting customers amid a cut-throat battle in China’s $8.8tn mobile payment market, but its spending had little effect on Alibaba which on Thursday announced a 36 per cent rise in net income to Rmb17.16bn in the quarter ending in December.
Alibaba again raised its full-year revenue growth guidance, to 55-56 per cent after producing its seventh consecutive quarter of 50 per cent plus year-on-year growth. Last quarter’s improvement was lifted 4 percentage points by the consolidation of logistics arm Cainiao.
However, shares slipped nearly 4 per cent in early trading in New York and analysts fretted at the increasing role of lower margin business. Alibaba has been investing in logistics and physical stores in pursuit of its “new retail” strategy blending online and offline shops.
“The quality of revenues is declining because the most high margin business is being replaced by Cainiao, new retail and international retail which offer much lower margins than the core China commerce business,” said Steven Zhu, analyst at Pacific Epoch.
Maggie Wu, Alibaba’s chief financial officer, said the new businesses had strategic importance that brought long-term benefits.
Ant saw the number of daily Alipay users double year on year in the last quarter. It was valued at $60bn in its last funding round in April 2016. Bankers — encouraged by rallying equity markets — now reckon it is worth substantially more.
The company’s long awaited initial public offering had been pushed back until next year, a timeframe that may remain in place.
Ant is likely to seek a dual listing, bankers say, with an IPO in either New York or Hong Kong accompanied by an offering in Shanghai to smooth the way with Beijing.
The restructuring has yet to receive clearance from regulators in China, whose unwillingness to have a payments company in foreign hands triggered Mr Ma’s contentious move to carve it out of Alibaba in 2011. That triggered a huge battle with Yahoo, then a major shareholder in Alibaba.
Ant is at present owned 76.4 per cent by Alibaba management and employees, and the remainder by domestic China investors. Those stakes will drop to 51.2 and 15.8 per cent respectively under the new structure.
Ant may also be hoping that partial ownership by a US-listed company will make it easier to make US acquisitions. Last month US regulators quashed its proposed purchase of MoneyGram.
The Ant restructuring was approved by a committee of non-executive Alibaba directors, the majority of whom are independent under NYSE rules. Credit Suisse advised that committee.