Alibaba and Tencent Shares Rise as Ant Group Fine Signals Regulatory Crackdown End
By Scott Murdoch and Donny Kwok
HONG KONG (Reuters) – Shares of Alibaba Group and Tencent rose in Hong Kong on Monday as China’s $984 million fine against Jack Ma’s Ant Group signaled the potential end of the regulatory crackdown on the country’s technology sector.
Following the penalty on Friday, Ant Group announced a share buyback at a 75% discount to its abandoned initial public offering (IPO) valuation. While the discount raised concerns, it is seen as a move that provides liquidity and certainty to investors.
The shelving of Ant’s IPO in late 2020 marked the beginning of a broader clampdown by Beijing on industries such as technology and education. Regulators aimed to assert authority over what they considered to be excesses and bad practices resulting from years of rapid growth.
This scrutiny has created an uncertain environment for both long-established firms and startups, causing billions of dollars in losses in share prices. Major companies such as Alibaba, Tencent, and Meituan have been affected.
Apart from Ant Group, Chinese authorities also fined Tencent’s online payment platform Tenpay nearly 3 billion yuan ($414.88 million) for violations in areas such as customer data management.
On Friday, the People’s Bank of China (PBOC) stated that most of the major issues concerning platform companies’ financial businesses had been addressed. Regulators will now shift their focus from specific companies to overall industry regulation.
Huatai Research analysts wrote in a note to clients, “We view this announcement as a key milestone for a regular, clear, and visible regulatory environment for China’s internet companies.”
Shares of Alibaba rose 3.2% at the lunch break in Hong Kong, while Tencent’s shares were up 1.5%, outpacing the broader market’s 0.8% rise.
“Their share prices have strongly rebounded today mainly driven by the expectation that regulatory pressure from mainland government will ease,” said Dickie Wong, Kingston Securities executive director.
ANT GROUP VALUATION SLASHED
Alibaba, which spun off Ant 11 years ago and owns a 33% stake, announced on Sunday that it was considering participating in the buyback, which would transfer shares to an employee incentive scheme.
Ant Group proposed repurchasing up to 7.6% of its equity interest at a price that values the group at approximately $78.5 billion. This figure is significantly lower than the $315 billion valuation it had in 2020 before Chinese regulators halted its IPO.
The PBOC stated that Ant and its subsidiaries violated laws and regulations regarding corporate governance, financial consumer protection, payment and settlement business, as well as anti-money laundering obligations. The fine imposed on Ant is one of the largest ever for a Chinese internet company.
The finalization of Ant’s penalty is seen as a step toward securing a financial holding company license, boosting its growth rate, and eventually reviving its plans for a stock market listing.
However, analysts are skeptical about whether Ant will proceed with a near-term IPO.
Oshadhi Kumarasiri, a LightStream Research analyst who publishes on Smartkarma, said, “According to the company, the reason for the buyback is providing liquidity to existing investors and attracting and retaining talented individuals through employee incentives. Ant could have achieved both these objectives through an IPO….This means the IPO is essentially put on hold.”
($1 = 7.2310 Chinese yuan renminbi)
(Reporting by Scott Murdoch in Sydney and Donny Kwok in Hong Kong; Editing by Anne Marie Roantree, Muralikumar Anantharaman, and Jamie Freed)