Minuscule or Gigantic? Ant Mega IPO
The “Ant Group”: sounds minuscule? The group takes its name from its commitment to serving individuals and small to medium-sized businesses, but this Chinese fintech dual listing in Hong Kong and Shanghai is anything but small. In fact, Ant’s initial public offering is expected to raise $30bn, which will be the biggest this year – and perhaps the biggest ever.
The Group, formerly known as the Ant Financial Services Group, is controlled by Jack Ma, the founder of Alibaba. Ant is reportedly seeking a valuation of $200–$300bn, which is more than most global banks and roughly three times Citi’s market capitalization. The timing couldn’t be better. The Ant Group had full-year revenues of more than Rmb120bn ($17bn) last year and net profits of more than Rmb18bn ($2.5bn). Profits in the first half of 2020 exceeded Rmb21bn ($3.1bn), already more than for the whole of 2019, even in the lackluster macroeconomic environment ushered in by the pandemic.
At a time when other global major financial institutions are suffering from the double whammy of low interest rates and shrinking transaction volumes, Ant has been little affected by COVID-19, despite its troubled pursuit of globalization. Much of Ant’s overseas business depends on the $127bn a year spent by Chinese tourists. This part of the business has come to a standstill as COVID-19 has hampered international travel. For the group as a whole, however, growth in online consumption and the relatively fast recovery of the Chinese economy have counteracted the decline in overseas business. In the first half of the year, the transaction volumes of China’s retail e-commerce markets edged up by 7.3%, and with China set to be the only G20 economy to achieve a positive growth rate this year, Ant seems to be on track for even greater success.
All in all, it’s a propitious moment for Ant to jump on the bandwagon of successful Chinese tech IPOs. Chinese regulators are encouraging investors to buy shares as Beijing steps up efforts to support the economy while loosening regulations. Companies such as JD.com, another Chinese e-commerce which was listed in Fortune Global 500 and recently filed for a secondary listing in Hong Kong, were oversubscribed 170 times by retail investors when they went public.
A $200bn valuation for Ant would be equivalent to about 28 times the group’s expected earnings, compared with 90 times for its US counterpart PayPal. The valuation is justified by its payments business alone, which accounts for nearly two thirds of China’s $7tn payments market. In addition, Ant began its transformation from a mere payment tool to a “super-app” aggregating people’s everyday needs from consumer lending, wealth management and insurance, to making an appointment with the doctor or calling a ride-hailing service. In fact, the payments’ share of Ant’s total revenue fell from 55% in 2017 to just 36% in the first half of 2020. Ant’s sprawling financial empire has made it more like a de facto bank than a simple payment tool like PayPal.
Never underestimate something that at first glance might seem small – like an Ant.