Explainer: Ant juggernaut jackknifes on $37 billion road to market

In this news, we discuss the Explainer: Ant juggernaut jackknifes on $37 billion road to market.

(Reuters) – With more than 730 million monthly users in China on its Alipay app and a growing role connecting lenders and borrowers, Ant Group had appeared unstoppable as it marched to the world’s largest exchange this week.

But those plans were halted on Tuesday when the Shanghai Stock Exchange suspended its $ 37 billion IPO, prompting Ant, who was separated from billionaire Jack Ma’s Alibaba group, to also freeze Hong Kong’s leg. .

WHAT IS ANT?

Ant traces its beginnings to Alipay, which was launched by e-commerce giant Alibaba in 2004 as a payment service to address concerns of Chinese buyers and sellers about online transactions in the then-nascent e-commerce market. from the country.

Alipay now handles more transactions each year than Mastercard and Visa, mostly in China, but Ant’s portfolio of services has expanded far beyond lifestyle and payment app.

Ant’s lending business drives consumer and small business demand and passes it on to banks for underwriting, collecting fees from lenders and minimizing risks to its own balance sheet.

Ant’s consumer loan balance was 1.7 trillion yuan ($ 254 billion) at the end of June, or 21% of all short-term consumer loans issued by Chinese financial institutions. deposit. But only 2% of the loans she had facilitated were on her balance sheet, her IPO prospectus said.

Ant is also partnering with asset managers, including mutual funds, insurers, banks and securities firms in China to launch investments for Alipay users. Its flagship product is Yu’e Bao, which allows people to put their reserve money in money market funds. The first Yu’e Bao fund was once the largest money market fund in the world.

A robotics advisor managed by Ant and Vanguard Group helps investors choose which funds to invest in for a small fee. Ant’s InsureTech business, on the other hand, sells a line of insurance products that cover everything from shipping delays to accidents.

WHAT KIND OF ANT, TECHNICAL OR THIN?

Ant has used artificial intelligence and other technologies to facilitate not only payments and loans, but also products ranging from insurance to wealth management, making it primarily a technology provider for financial institutions. .

Ma referred to Hangzhou’s Ant as “techfin” rather than “fintech,” and she benefited from the much richer valuations the market offers to tech companies than to financial institutions.

But while Ant presents itself as a tech company, Chinese regulators are placing it firmly in the financial sector.

Before the Chinese central bank and regulators met with Ma executives and top Ant executives on Monday over proposed rules for online microcredit, some analysts said Ant hoped to escape further scrutiny of the issues. financial companies.

WHAT IS IT WORTH?

Ant benefits from the much richer valuations the market offers to tech companies than to financial institutions.

Ant had won tech-style awards for its IPO, which valued it at around $ 315 billion, more than 31 times its expected net profit for 2021. The combined market capitalization of JPMorgan, Morgan Stanley, Citigroup and Goldman Sachs is $ 548 billion.

While this valuation is along the same lines as Alibaba, which trades at 27.6 times forward earnings and PayPal at a multiple of 45, some investors believe Ant should be valued at $ 400 billion or more when trading. the IPO, sources told Reuters.

This compares to the Industrial and Commercial Bank of China, the world’s largest bank in terms of assets, with a multiple of around 6 and reflects the end-to-tech shift that Ant began two or more ago. three years as Chinese regulators sought to control financial risks.

Last year, Ant made most of its revenue from fees generated by its digital finance technology platform.

Writing by Alexander Smith; edited by Carmel Crimmins

Original © Thomson Reuters

Originally posted 2020-11-04 03:36:10.

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