Alibaba has added an additional angle to the announcement of its latest financial report today with news that it is taking a 33 percent stake in Ant Financial, its fintech affiliate that operates Alipay and other financial services.
The deal, which both parties said stems from an agreement made in 2014, will see Alibaba pick up newly issued shares in Ant, seemingly paving the way for a public listing. It will also mark an end to a profit-share agreement which saw Ant give Alibaba “royalty and technology service fees” equal to 37.5 percent of its pre-tax profits each quarter.
The agreement will give Alibaba direct ownership of Ant, which is valued at over $60 billion. Although, somewhat confusingly, Alibaba said the deal will have no cash impact on its business once completed. Alibaba appears to be paying with IP, or more accurately: it is picking up the shares “in exchange for certain intellectual property rights owned by Alibaba exclusively related to Ant Financial.”
“An equity stake in Ant Financial enables Alibaba and our shareholders to participate in the future growth of the financial technology sector, as well as the benefits of user growth and improved customer experience,” Alibaba Group CEO Daniel Zhang wrote in a statement.
The initial reaction was less than positive, however, with Alibaba’s share price dropping right after the announcement.
#Alibaba share price takes a dive in pre-market trading following news of its plans to acquire 1/3 of Ant Financial pic.twitter.com/rfNTx7erbh
— Lulu Yilun Chen (@luluyilun) February 1, 2018
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Alipay is China’s most popular mobile payment wallet, but Ant also operates an investment fund, micro-loans, insurance services, a digital bank and more. Altogether, it claims to reach more than 450 million users via its products.
Ant and Alibaba have long collaborated together — including joint participation in investments such as Paytm in India — and this new allocation of shares is another hint that Ant may be in line to go public soon. Ant had been tipped to list last year, but it instead opted to take on $3 billion in debt financing to bankroll a series of expansions that set up financial services products in Southeast Asia, Japan, Korea and beyond. A move into the U.S. fell apart, however, when it was unable to secure governmental approval for a proposed $1.2 billion acquisition of cross-border payment provider MoneyGram.
If Ant is to go public soon, it may just list in Hong Kong. Alibaba Chairman Jack Ma recently said the company would consider listing some of its numerous affiliates in the city-state and Ant may be near the top of the list.
“Ant has no specific listing plans or timetable for an IPO,” a spokesperson told TechCrunch.
Hong Kong is gaining momentum as a tech IPO destination with gaming hardware firm Razer and Tencent’s China Literature e-book unit both holding successful listings last year.
