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Monday Brief: Listing Ant Financial

China tech IPOs face setbacks, both in Hong Kong and New York. What about Ant Financial?

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The U.S.-China trade war is accelerating and that is impacting Chinese technology IPOs. For Hong Kong Exchanges, since it adopted dual-class shareholding rules, the biggest prize is to host the listing of Ant Financial Services Group.

In May of last year, it raised $10 billion from local and global investors, which put it at a valuation of $150 billion (Reuters). It's the most highly valued fintech company in the world, and an IPO would be comparable in size to those of Facebook ($104 billion) or Ant's parent, Alibaba ($168 billion).

The company was rumored to look at an IPO in 2017 (or perhaps just a lot of bankers were hoping for it to list). That was the year however when it was blocked by the U.S. from acquiring MoneyGram; it was also a year when Chinese regulators were still cleaning up the P2P lending sector, and bankers told DigFin fintech listings were being delayed.

Back then, Ant was valued at $60 billion, so it's almost tripled in value since. Now the company is said to be listing in Shanghai (Technode), on the soon-to-be-launched Nasdaq-style second board of the Shanghai Stock Exchange. Parent Alibaba, meanwhile, is rumored to be looking at a $20 billion secondary listing in Hong Kong (TechCrunch), which some excitable reports suggest is the first stage to an exit from the U.S.

Is Ant really worth $150 billion, though? The entire Chinese tech sector has had a rough time. Last year's blockbuster tech IPOs in Hong Kong, such as Xiaomi and Meituan Dianping, are trading far below their IPO price. Other Chinese tech companies such as Megvii and SenseTime may put IPO plans on hold (FT).

Some of this is timing / trade-war jitters. KPMG says Hong Kong's IPO haul will be $12.8 billion less in 2019 (SCMP). But it's also the result of real-money investors taking a dimmer view of companies that are not profitable: look at Lyft and Uber as well as Chinese techies. The Silicon Valley model of user growth at all costs doesn't wash on Wall Street or in Hong Kong. So far Alibaba has not been grilled by Wall Street analysts about earnings (Deep Throat, a blog). This soft approach may change.

But Ant has bounced back from its MoneyGram disappointment by successfully acquiring the U.K.'s WorldFirst for $700 million. It has stakes in many of Asia's most successful consumer-facing startups, including India's PayTM, giving it a world-spanning empire in terms of interoperable tech stacks.

And it is the leader when it comes to scalable models for financial inclusion. This isn't just users but real assets under management, and real insurance premiums sold (DigFin).

Finally, A shares trade at a steep premium to H shares, because of how China manages capital controls: there's always far more global demand for domestically listed stocks than supply made available. So if Ant wants to keep that $150 billion (or more!) figure alive in global investors' minds, then getting a juicy valuation with an A share might not be a bad way to start.

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Monday Brief: Listing Ant Financial