Alibaba and Tencent buoyed by hope of end to tech crackdown
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[July 10, 2023] 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.
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The logo of Alibaba Group is seen at the
company's headquarters in Hangzhou, Zhejiang province, China July
20, 2018. REUTERS/Aly Song/File Photo
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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