After its long-serving CEO stepped down, shares of companies linked with the Chinese fintech giant, Ant Group saw a major rise.
For example, Hong Kong-listed shares of Alibaba jumped 7%, Longshine Technology Group Co. Ltd, ilin Zhengyuan, Shanghai Golden Bridge Infotech Co, Orbbec Inc, and Hundsun Technologies all saw a big rise in their share.
All aforementioned companies all have direct or indirect stakes from the Ant Group ranging from 5% to 20%.
Ant indirectly owns stakes ranging from more than 20% to slightly more than 5% in those companies.
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The report of Jack Ma stepping down as the company’s head came over the weekend. The new change is expected with the regulatory crackdown which has led to its big plunge since its debut in the stock market a couple of years back.
According to a Chinese market strategist, Redmond Wong, Jack Ma stepping down from Ant and other businesses would help remove some uncertainties while paving the way to develop and expand the group’s overall businesses.
“It should have removed some of the authorities’ concerns about the group as the change was likely a negotiated outcome with the authorities,” Wong said. “And investor sentiment towards the China internet sector is likely to improve further.”
Guo Shuqing, head of China’s Banking and Insurance Regulatory Commission (CBIRC), said in an interview with China’s official Xinhua news agency published on Jan. 7 that rectification of financial businesses of 14 platform companies has been “basically completed”, while a few remaining issues need to be resolved. Guo did not name the companies.
With that, authorities are expected to adopt a dialed-down regulation in order to encourage platform companies to operate while also being compliant with the regulations put in place by authorities, Guo added.
Could Ant revive its IPO?
When the Ant Group went public in 2020, its US$37 billion IPO would have made it the world’s largest but it was canceled at the last minute which led to a forced restructuring of the company.
There have also been rumors of Jack Ma ceding control around this period.
“Investors can stop guessing and can finally assign a risk premium to the new company that Ant was transformed to be,” Alexander Sirakov, managing partner at Aquariusx, a Shanghai-based investment consultancy, said after Ant’s announcement.
Morgan Stanley, in a Jan. 8 research note, said it would elevate Alibaba to its “top pick” of stocks in China’s internet industry in 2023, citing easing regulation as part of the reasons for its decision.
Even though some analysts think the fact that Jack Ma left the company would help the company revive its IPO, this may not be the case as it could result in a further delay due to listing regulations.
China’s domestic A-share market requires companies to wait three years after a change in control to list. The wait is two years on Shanghai’s Nasdaq-style STAR market, and one year in Hong Kong.
Ant said on Sunday it has no plan to initiate an IPO.
Chinese authorities could potentially impose a US$1 billion fine on Ant Group which could set the stage for ending the company’s two-year-long regulatory overhaul.
The CBIRC on Dec. 30 approved a capital increase in Ant’s consumer finance arm to 18.5 billion yuan ($2.68 billion) from 8 billion yuan in the latest step of its restructuring.
Li Nan, professor of Finance at Shanghai Jiaotong University, however, said Ant’s inherent problems remain after its change of control.
“The key problem in the business model of Ant is embedding loan (Huabei and Jiebei) wealth management and insurance in the payment platform (Alipay), evading the necessary risk management regulation, such as capital adequacy ratio, liquidity ratio as well as loan loss reserve ratio,” Li said.
The leverage is still way too high after Ant’s capital increase, she said.