Jack Ma’s Ant Group Pushes Ahead With ‘Project Star’ Listing Plans; Investors See Big IPO Gains

(WSJ) When Ant Group Co. goes public later this year, the Chinese financial-technology behemoth will likely earn a stratospheric market valuation that would place it at the top of companies listing globally for the first time.

In the coming days, the company controlled by billionaire Jack Ma could shed light on what has been a closely guarded secret for years: how it actually makes money. Ant, which is preparing for blockbuster share sales in Hong Kong and Shanghai, is planning to file its listing documents with exchanges in both cities this week, according to people familiar with the matter, kicking off a process that could have the company go public by October.

The company’s debut will provide a major boost to China’s nascent Nasdaq-style exchange known as the STAR Market, which was created last year to draw listings from the country’s homegrown technology firms. Ant, which unveiled its IPO plans right around the new board’s one-year anniversary, would be by far the biggest and most valuable company to list there. Inside Ant, the code name for the listing plans is “Project Star,” according to people familiar with the company.

Ant’s listing prospectus will for the first time reveal detailed financial and operational data that investors and analysts will use to justify a more than $200 billion market valuation that Ant is said to be seeking with its dual IPOs.

If attained, it would be the highest-ever valuation at the time of a deal pricing for a company going public for the first time on a major exchange, according to data from Dealogic. Back in 2014, Ant’s sister company, Alibaba Group Holding Ltd., was valued at around $168 billion in its record-setting IPO, which ended up raising $25 billion.

Hangzhou-headquartered Ant, formerly Ant Financial Services Group, operates Alipay, a popular payment and lifestyle app that has more than 700 million monthly active users in China. Two years ago, the company was valued at around $150 billion after raising $14 billion in private capital from domestic and global investors.

Ant’s valuation has skyrocketed since it was launched in 2014. The following year, it was valued at around $45 billion in a domestic fundraising round. In 2016 its valuation jumped to $60 billion, based on exchange rates at the time. Among Ant’s current investors are private-equity funds Warburg Pincus, Carlyle Group LP, Silver Lake, General Atlantic and Primavera Capital Group, as well as Singapore and Malaysia’s sovereign-wealth funds.

Ant’s surging value mirrors a sharp run-up in valuations for many U.S. and Chinese technology firms. In many cases, investors have prized rapid expansion and strong market positions over short-term profitability. Some high-growth-focused startups—like We Co. and Uber Technologies Inc. —have recently stumbled and prospective investors will likely want to know how Ant plans to translate its powerful competitive position into higher future profits.

Investors who wrote Ant big checks in 2018—reaching $500 million in some cases—bought into the company expecting its valuation to top $200 billion when it goes public, according to people familiar with the matter and an investor presentation obtained by The Wall Street Journal. That level implied gains of at least 30% on their investments.

Over the past year, some investment funds that bought Ant shares have marked up the value of their investments significantly, according to Wall Street Journal calculations from their regulatory filings.

Two funds managed by Fidelity Investments that hold stocks, bonds and other assets marked their Ant shares at the end of June at prices that implied a company valuation of $305 billion, according to their filings with the U.S. Securities and Exchange Commission.

Other funds managed or sub advised by T. Rowe Price Group Inc. earlier this year marked their Ant shares at prices that implied a $188 billion valuation, the filings showed.

The discrepancies are wide in part because the company hasn’t shared comprehensive financial results with most of its shareholders thus far. In addition, its businesses that meld financial services and technology have proven difficult to value. Mutual funds, hedge funds and other institutional investors use differing or proprietary methods to estimate the value of securities from private companies that are difficult to sell. Inputs into those models include whatever financial information is available as well as valuations of publicly traded companies in similar industries.

In Ant’s case, investors have over the years been able to glean quarterly profit numbers for the company from the results of Alibaba Group, which used to have a profit-sharing agreement with Ant and now owns a third of the company. Earlier this month, Alibaba’s quarterly filings showed that Ant produced about $3.5 billion in profit for the six months ending in March, but provided virtually no explanation as to how the money was made.

Ant previously shared some quarterly financial figures and hosted regular briefings with shareholders, but two of its investors said information from the company was “very limited” and had “some delay.” In addition, no representatives from outside investors were given seats on Ant’s board following its various fundraising rounds. Last week, Ant added three independent directors to its board, according to business-registration records.

“At first look, everyone agrees this is a good company. But it isn’t easy to understand their businesses and advantages,” said David Dai, senior research analyst at Sanford C. Bernstein, who came up with a $210 billion valuation for Ant in November 2019.

“Ant’s businesses are very complex, with a variety of products spanning financial services and technology. You can’t get a full picture from either a financial or a technological perspective,” he added.

The company known as Ant encompasses Alipay, which handles trillions of dollars worth of payments a year and houses various digital finance operations that include personal credit lines, small-business loans, insurance and investment funds.

The company is also known for coming up with novel ideas, such as Yu’e Bao, a product used for managing spare cash that quickly became the world’s largest money-market mutual fund.

Ant’s entrenched position in China’s payments industry—and the rapid growth of Yu’e Bao—have drawn scrutiny from Chinese banking and securities regulators in recent years. For some time, the company has been trying to shed its image as a provider of financial services. In 2017, then-Chief Executive Eric Jing told investors Ant was a techfin company, rather than a fintech business.

Earlier this year, Ant dropped the word financial from its name, saying it wanted to be known as a technology provider. Outside of payment-processing revenue, Ant makes the bulk of its money from technology service fees that it charges banks, asset managers and other businesses that provide consumer and business loans and sell products to Alipay’s users.

Its myriad products have enabled Ant to diversify its income stream, lowering its reliance on payment processing for most of its revenue. While its payments business is still growing, Ant has in the past lost money after spending heavily to increase its market share. In 2018, the company incurred an annual loss of at least 1.9 billion yuan ($275 million) due to “aggressive marketing and promotion activities,” increased user acquisition and innovation costs, according to Alibaba’s filings.

Source: Wall Street Journal by Jing Yang

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