Evaluation: fin or approach? China's ant, the most important public providing of all time, says it’s a tech firm, not a financial institution


© Reuters. FILE PHOTO: A thermal imaging camera can be seen in front of an Ant Group logo at the headquarters of Ant Group, a subsidiary of Alibaba, in Hangzhou


By Yingzhi Yang, Cheng Leng and Julie Zhu

BEIJING / HONG KONG (Reuters) – China's Ant Group, poised to make the biggest public sale of shares ever, poses a fundamental mystery: what kind of company is it – a financial giant or a tech giant?

This is important for investors both before and after the $ 34.4 billion IPO Saudi Aramco (SE 🙂 & # 39; s record of $ 29.4 billion last year. The shares are expected to start trading in Shanghai and Hong Kong on Thursday.

A spin-off from billionaire Jack Ma & # 39; s Alibaba (NYSE 🙂 Group, Ant presents itself as a technology company while financial regulators suggest that the company remain within their jurisdiction.

The Hangzhou-based giant is benefiting from the far higher valuations the market offers technology firms than financial institutions. Analysts hope to avoid scrutiny by financial regulators.

China's central bank and financial regulators met with executives from Ma and Top Ant on Monday as Beijing released draft rules for online microcredit.

One rule would require companies like Ant to work with banks to bear default risk while limiting leverage and credit amounts – all approaches to regulating banks. An Ant spokeswoman said the company would "carefully implement" the views of the meeting.

Ant was launched as Alibaba's payment processor in 2004. The central Alipay app has more than 730 million monthly users in China.

It has also built an empire linking China's borrowers and lenders, securing short-term loans in minutes. It has branched out and used artificial intelligence and other sophisticated techniques to enable not only payments and loans, but products from insurance to wealth management.

That means, says Ant, that it's primarily a technology provider for financial institutions. Ma called it a "techfin" rather than a "fintech" outfit.

Skeptics find this argument unconvincing. They say financial regulators are unlikely to lower the heat on a company that only changed its name from Ant Financial this year.

Ant Group declined to comment on this article.


Tech teams, not financial bankers, are leading the IPO at most of Ant's underwriting banks, knowledgeable people told Reuters. You've secured tech-style prizes.

The double listing values ​​Ant at $ 312 billion, or 31.4 times its projected net profit for 2021 in the same environment as Alibaba, trading at 27.6 times its futures profit and New York-listed peer PayPal at a 45 -fold.

Some investors believe Ant should be worth up to $ 400 billion or more when it goes public, two sources said.

Compare this, for example, to the Industrial and Commercial Bank of China, the largest bank in the world by assets, by a multiple of 6.

Ant started moving from fin to tech two or three years ago when Chinese regulators stepped up scrutiny to control the financial risks in the system. Last year, for the first time, the company generated most of its revenue from fees generated through its digital finance technology platform.

Ant executives regularly stress that technology is in the company's DNA. "Since we were founded over 16 years ago, digital technology has been an integral part of what we do," said CEO Simon Hu recently.

According to the prospectus, more than 60% of Ant's employees are engineers and programmers. It offers high-tech risk analysis but leaves lending decisions to the banks, according to two sources. And unlike banks, which traditionally rely on collateral to determine creditworthiness, Ant's risk modeling algorithms use the data it collects, analysts say.

Patriarch Ma, who drove the transition to a technical identity, recently described financial regulation as obsolete and ill-suited for companies trying to use technology to drive financial innovation.


However, China's financial regulators are becoming more cautious about financial technology. They view Ant's business model of bringing borrowers and lenders together primarily as a financial service.

Ma's comments on regulators point to a deep conflict between fintech development and financial regulation, said Ji Shaofeng, a former official with China's Banking and Insurance Regulatory Authority.

"Although Ant is trying to step out of its financial identity and emphasize itself as a digital tech company, the dominant portion of its revenue that comes from lending and its high leverage has always drawn widespread attention from both regulators and the company. " the capital markets, "Ji wrote in a column for the Caixin financial news agency.

Ant's most lucrative business, consumer credit, is based on interest income. Analysts estimate that the company will cut interest rates on loans, which it allows, by an average of 30 to 40%.

"That's why the profit listed in Ant's prospectus is so lucrative, even more lucrative than at banks," said a source. "In business terms, you can think of Ant as the interbank counterpart of all lenders."

Vice Finance Minister Zou Jiayi recently said at a conference Ma attended that fintech must not be allowed to evade regulation, engage in illegal arbitrage and strengthen a monopoly style that takes all winners into account.

"Fintech has not changed the type of credit-based and leveraged finance," she said.

China's Cabinet-level Financial Stability and Development Committee said in a statement on Sunday widely viewed in response to the debate on Ant's nature, "Innovation and entrepreneurship should be encouraged, but at the same time we must strengthen oversight and include all financial activities legally in." the legal framework. "


Steven Gregory