China imposed more than $1 billion in fines on tech giants Ant Group Co. and Tencent Holdings Ltd., signalling an end to a crackdown on the sector that had wiped out billions in market value and derailed the world’s biggest initial public offering.
(Bloomberg) — China imposed more than $1 billion in fines on tech giants Ant Group Co. and Tencent Holdings Ltd., signalling an end to a crackdown on the sector that had wiped out billions in market value and derailed the world’s biggest initial public offering.
The People’s Bank of China said financial regulators fined Ant 7.12 billion yuan ($984 million), wrapping up more than two years of probes into the finance technology firm founded by billionaire Jack Ma. Tencent was levied a 2.99 billion yuan fine, according to statements from the central bank Friday.
Tencent and Ant affiliate Alibaba Group Holding Ltd. soared in New York trading. Investors are betting the fines draw a line under the multi-year crackdown that torpedoed Ant’s planned IPO in 2020 and ensnared some of the nation’s most powerful private firms in sectors from online education to gaming. It paves the way for Ant to revive growth and eventually resurrect plans for an IPO.
“The market likes it because scrutiny looks likely to be over and the fine, though big in absolute terms, is very manageable for such a big company,” said Vey-Sern Ling, managing director at Union Bancaire Privee, referring to Ant. The levy is less than the 9.6 billion yuan profit that Ant generated in the December quarter.
Alibaba jumped 8% to $90.55, the biggest gain in more than three months, lifting other New York-listed China stocks. Tencent rose 4%, while TAL Education Group added 7%.
The People’s Bank of China said fines were imposed on Ant Group and its subsidiaries in response to violations of laws and regulations in areas including financial consumer protection, payment and settlement business and anti-money laundering obligations. Ant said it has completed the rectification required by China’s financial regulators, according to a company statement.
Strong Signal
A meaningful relaxation of curbs on Ant — one of the most high-profile casualties of President Xi Jinping’s sweeping clampdown on the country’s tech giants — would send a strong signal that policymakers are following through on recent pledges to support the industry.
The Communist Party’s evolving stance toward the private sector has become one of the most closely watched developments in global markets in recent years, with some observers even calling China’s sprawling internet sector uninvestable.
“The decision addresses market concerns about fintech and the overall Internet sector,” Jefferies analysts including Thomas Chong said in a note. They said it “removes overhang” on Alibaba’s shares.
Most of the key problems in financial platform enterprises such as Ant Group and Tencent have been rectified, the central bank said in the statement.
Ant’s bottom line has eroded since the days it was preparing for the world’s largest IPO in 2020, while its affiliate Alibaba is in the process of splitting into six main businesses from cloud services to meal delivery and logistics. While investors initially cheered the potential creation of value, Alibaba’s shares have come off their 2023 highs and have shed more than $600 billion of their value since the Ant episode began.
Fines were also issued to PICC Property & Casualty Co., Postal Savings Bank of China Co. and Ping An Bank Co. given the problems found in previous law enforcement inspections, according to the statement. It’s unclear why Tencent also received a fine. The WeChat operator’s executives have stressed repeatedly since 2022 that their financial businesses are in full compliance with the law, and that they’re in constant dialogue with Beijing.
In a statement, Tencent said it sees no adverse impact from the fine, and that it expects China will focus on “normalized regulation” going forward.
Ant co-founder Ma returned to China in early March after a prolonged period of traveling overseas. The government persuaded Ma to go back to the mainland as a means to showcase authorities’ support for private entrepreneurs, Bloomberg News had reported.
The move follows Ma’s decision to cede control of Ant in January, holding about 6.2% voting rights after the change. Following that, the Communist Party chief of Hangzhou city praised Ant for abiding by the party’s leadership, and required local government departments to solve problems raised by the fintech company.
Ant said in January it has no plans for an IPO now and is focusing on its business. Still, the company’s Chairman Eric Jing said in 2021 that it would eventually go public.
More than two years ago, Chinese regulators abruptly halted Ant’s IPO, sending shock waves across global capital markets. New rules have been slapped on the fintech giant, which has operations ranging from consumer lending and wealth management to online payments.
The central bank ordered Ant to fold all financial units into a holding company. It also told the firm to open up its payments app to competitors and sever improper linking of payments with other products including its lending services.
Still, China’s latest measures don’t represent a return to low-regulation growth, said Martin Chorzempa, fellow at the Peterson Institute for International Economics.
“Instead it is the permanent installation of a much higher regulatory barrier for this sector,” he said. “Authorities clearly have struggled to determine exactly what they want the financial technology space to look like and the role of big technology firms in it.”
For Ant, it may take longer than anticipated to resume an IPO. Companies can’t list domestically on the country’s so-called A-share market if they have had a change in control in the past three years — or in the past two years if listing on Shanghai’s STAR market, which is geared toward new technology companies. For Hong Kong’s stock exchange, this waiting period is one year.
Ant’s valuation will also look different if it were to go public again. While Ant fetched a valuation of $280 billion pre-IPO, the myriad regulations imposed over the past two-plus years mean it’s now worth a fraction of that, as it’s now more “fin” than “tech.”
Ant could also spin out some of the businesses such as blockchain technology, its database operation known as OceanBase and global services, people familiar have said. Those deliberations are preliminary and could be subject to change.
Ant Could be Valued at Only $22 Billion-$57 Billion: BI
–With assistance from Evelyn Yu, Yiqin Shen and Tom Hancock.
(Updates shares)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.