By Scott Murdoch and Julie Zhu
HONG KONG (Reuters) – Alibaba Group and Tencent shares rose in Hong Kong on Monday as China’s $984 million fine for Ant Group was viewed as signalling the end of a regulatory crackdown on the country’s technology sector.
After the penalty on Friday, Jack Ma-founded Alibaba affiliate Ant announced an up to $6 billion share buyback that values the fintech company at a 75% discount to the valuation touted in an abandoned initial public offering (IPO) but is seen as providing liquidity and certainty to investors.
The abrupt shelving of Ant’s IPO in late 2020 heralded the start of a wide-ranging clampdown by Beijing on industries ranging from technology to education, as regulators sought to assert their authority over what they deemed to be excesses and bad practice emerging from years of runaway growth.
The scrutiny made for an uncertain environment that wiped billions off share prices, ensnaring companies from online retail giant Alibaba to gaming company Tencent and food delivery group Meituan.
Alibaba’s Hong Kong-listed shares closed 3.2% up, beating a 0.6% rise for the benchmark Hang Seng index. Tencent closed 0.7% up.
Beijing’s move to finalise penalties and outstanding issues with Ant and other tech names comes as China’s economy “is challenged by a weak recovery” and is meant to assuage investor concerns along with commitments to open support private sector growth, said Daniel Tu, founder of Active Creation Capital.
Besides Ant, the Chinese authorities also fined Tencent’s online payment platform Tenpay nearly 3 billion yuan ($414.88 million) over areas such as customer data management.
The People’s Bank of China (PBOC) on Friday said that most of the prominent problems for platform companies’ financial businesses had been rectified and regulators would now shift their focus to overall regulation of the industry rather than specific companies.
“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.
ANT GROUP VALUATION SLASHED
Alibaba, which spun off Ant 12 years ago and has a 33% stake, on Sunday said 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.
Foreign investors bought into Ant in the third fund raising round in 2018.
Ant said on Saturday that it proposed to repurchase up to 7.6% of its equity interest at a price representing a valuation of about $78.5 billion.
That compared with the $315 billion valuation in 2020 for what was set to be the world’s largest IPO, had it not been derailed at the last minute by Chinese regulators.
The buyback will be one of the first opportunities for Ant investors who had participated in three funding rounds from 2015 to 2018 to sell out of the company.
Ant’s largest onshore investors were the National Council for Social Security Fund, Zhifu (Shanghai) Invstment Centre, Shanghai Zhongfu Equity Investment Management Center and China Life Insurance, according to the 2020 IPO prospectus.
Ant and its subsidiaries had violated laws and regulations in areas including corporate governance, financial consumer protection and anti-money laundering obligations, the PBOC said on Friday as it announced one of the largest fines ever for a Chinese internet company.
The finalised penalty could pave the way for Ant to secure a financial holding company licence, lift its growth rate and eventually revive its plans for a stock market listing.
However, analysts question 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 IPO is essentially put on hold.”
($1 = 7.2310 Chinese yuan renminbi)
(Reporting by Scott Murdoch in Sydney and Julie Zhu and Donny Kwok in Hong Kong; Additional reporting by Selena Li in Hong Kong; Editing by Anne Marie Roantree, Jamie Freed and David Goodman)
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