Fintech

Jack Ma to give up control of fintech giant Ant Group: WSJ

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China’s billionaire tech boss Jack Ma plans to cede control of Ant Group, the fintech powerhouse closely affiliated with Alibaba, the e-commerce giant he founded, The Wall Street Journal reported on Thursday.

If realized, the move will mark another important turn in Ant’s restructuring and power shuffling since China called off its $35 billion initial public offering nearly two years ago.

Ant Group could not be immediately reached for comment.

Rectification

In November 2020, Chinese authorities halted Ant’s IPO, which at the time would have been the world’s largest public listing, and subsequently ordered Ant to undergo a “rectification” process that would subject the firm to the same financial regulations that oversee traditional banks.

Up until that point, Ant, like many other Chinese internet firms, had been growing at a breakneck speed in a relatively lenient regulatory environment. The company bred several multibillion fintech businesses, including Alipay, which dominates China’s mobile payment market in a duopoly shared with Tencent’s WeChat Pay; a money market fund that soared to be the world’s largest at one point; and a lucrative microlending business.

Ant, China’s financial authorities said, should “return to its roots in payments and bring more transparency to transactions; obtain the necessary licenses for its credit businesses and protect user data privacy; establish a financial holding company and ensure it holds sufficient capital; revamp its credit, insurance, wealth management and other financial businesses according to the law; and step up compliance for its securities business.”

There’s no sign that Ant would resume its IPO plans anytime soon. In June, the firm said it “does not have any plan to initiate an IPO” and was “focused on steadily moving forward with our rectification work,” denying a Bloomberg report that Chinese regulators were weighing reviving its IPO as they eased crackdown on the tech industry.

China’s securities regulations restrict companies from listing domestically if they have undergone a major shareholder change during the past two to three years.

That means Ant needs to keep maintaining the morale of employees who have been waiting to sell their stock. Last year, it had plans to offer interest-free loans to staff, Bloomberg reported.

It’s not just Ant that has to prevent a potential employee exodus, as China toughens rules for companies seeking overseas listings, which could impact internet giants like ByteDance.

End of the Jack Ma era?

Ant started out as a payments processor of Alibaba, which Ma, at the time the e-commerce firm’s CEO, spun out in 2011. The event caused a huge controversy as it was said to happen when Alibaba shareholders Yahoo and SoftBank were in the dark. Ma justified the decision as necessary for securing a payments license to operate in China, which would not have been granted if the company had foreign shareholders.

The siblings then started a profit-share agreement that saw Ant give Alibaba “royalty and technology service fees” equal to 37.5% of its pre-tax profits each quarter, until 2018 when Alibaba acquired 33% of Ant. The pair has been symbiotic, with Ant’s Alipay app deeply integrated into Alibaba’s suite of retail services and its financial services touted to business owners on Alibaba’s marketplaces.

Ma started preparing for his gradual retreat from Alibaba’s daily operations nearly a decade ago and set up a partnership structure to ensure smooth succession over generations. He stepped down as Alibaba’s CEO in 2013 and retired as chairman in 2019. The founder owned less than 5% of the e-commerce giant as of 2020.

But Ma has stayed on as Ant’s largest shareholder. The firm’s IPO prospectus from 2020 showed the founder commanded 50.52% of its shares through an entity he controlled.

Ant informed regulators of Ma’s intention to relinquish control as the company prepared to transition into a financial holding company, The Wall Street Journal reported. Regulators didn’t demand the change but have “given their blessing.” Ma could be transferring his shares to some of Ant’s other executives such as CEO Eric Jing, the report said.

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