On Monday, China's Ant Group announced the intended pricing for its dual initial public offering on the Shanghai and Hong Kong stock exchanges, which would raise $34.5 billion and value the company as a whole at around $313.37 billion.
This would make the fintech giant the biggest IPO listing of all time in terms of funds raised, ahead of even Saudi Aramco's (SAU:2222, Financial) December 2019 IPO on the Riyadh exchange, which raised $29 billion.
Ant Group expects the stock to start trading in Hong Kong on Nov. 5, though it has not yet stated when it will begin trading in Shanghai. The Hong Kong listing will be in Hong Kong dollars, with shares valued at HK$80 ($10.32) apiece, while the Shanghai listing will be in Chinese yuan (also known as Renminbi), with shares valued at 68.8 yuan ($10.13) apiece.
The highly anticipated blockbuster is expected to draw the attention of investors around the world. With this in mind, let's take a look at what the company does, how it is going public and how it could create value for investors.
About Ant Group
Ant Group, formerly known as Ant Financial, was founded in 2003 by Jack Ma to process transactions for Alibaba Holding Group (BABA, Financial). The group's Alipay service played a key role in China's shift to electronic payments.
It gained its popularity by cultivating trust with buyers, holding on to the payments until they confirmed buyer satisfaction in order to quickly issue a refund if items were fake or never arrived. The turn of the century saw a much more lawless internet than the internet of today, especially when it came to online buying and selling among strangers. Due to China being home to a significant portion of the mass manufacturing economy, online shopping was even more of a gamble than it was in many countries, since it was easier to make or buy fake goods.
In 2011, the Alipay service was spun off as a separate company, with Alibaba keeping a one-third stake. The Alipay app, together with the WeChat app, now make up a duopoly of QR code-based payment apps that are the go-to payment method in many parts of China, especially urban areas.
Going public
Unlike Alibaba, which is listed on the New York Stock Exchange, Ant Group will not be listed on any U.S. stock exchanges due to the ongoing trade and regulatory issues from the U.S. The Trump administration has made no secret of the fact that it is trying to use executive orders to force American investors out of Chinese stocks and potentially even de-list Chinese stocks from U.S. exchanges.
As a result, it comes as no surprise that Ant Group is not willing to risk its IPO being rained on by political issues. Instead, the company plans to dual list in Hong Kong and Shanghai. This should significantly decrease the risk of the stock being affected by political tensions.
Alibaba has agreed to buy approximately a third of Ant Group's shares (around 730 million) via its subsidiary Zhejiang Tmall Technology, which will allow it to keep its one-third stake.
The funds from the IPO will go toward helping Ant Group grow. Although the government is still wary of fast-growing companies, Ant Group and Alibaba have so far been among those that have avoided major regulatory scrutiny, so it seems reasonable to expect that they will be able to continue doing so in the future – the same can be said for many U.S. giants like Amazon.com (AMZN, Financial).
Ant Group outlined an ambitious growth plan at an analyst event earlier this year, aiming to expand services through both organic growth and acquisitions. However, it seems unlikely that it will try to expand outside of China for now. Currently, about 95% of its revenue comes from mainland China, and there is a significant barrier of entry for a different type of electronic payment service to gain share in a new market.
Instead, Ant Group intends to focus on fintech development in its home turf, as there is still a long runway for growth in terms of serving the country's increasing digital transformation needs.
A good investment?
As the market for technology in general (and fintech in particular) enters a strong growth phase in China, it seems highly likely that a dominant player like Ant Group stands to achieve excellent growth along the same lines as credit card giants Mastercard (MA) and Visa (V) in the U.S. Additionally, Ant Group will be using the proceeds from its IPO to help grow the types of services it offers, helping to bring business across China into the digital age.
Unfortunately for U.S. investors, the stock would be difficult for most to buy directly. On the bright side, since the company works so closely with Alibaba, its 33% owner could serve as a proxy of sorts. Another way to invest in Ant Group is through China-oriented exchange-traded funds like the SPDR INDEX SHS FDS (GXC, Financial) ETF and the iShares MSCI China ETF (MCHI, Financial) ETF, which are practically certain to get shares.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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