Jack Ma's Ant is China tech's tiniest bellwether

HONG KONG (Reuters Breakingviews) -Jack Ma is leading China’s consumer internet out of the sin bin. After his fintech champion Ant said its founder will cede control, shares in affiliate Alibaba rose 7% in Hong Kong on Monday morning. It may mark the end of Ant’s campaign to placate regulators after they derailed the group’s $37 billion initial public offering in late 2020. It’s not clear whether it marks much more than that.

Alibaba Group co-founder and Executive Chairman Jack Ma attends Alibaba Group's 11.11 Singles' Day global shopping festival in Shanghai, China, November 12, 2018. REUTERS/Aly Song - RC17B9127B90

The company on Saturday announced that Ma’s 50%-plus voting stake will be whittled down to roughly 6%, and a fifth independent director will join the board. Although the dilution was expected and his economic stake remains the same, investors might see this as bookending Beijing’s campaign to rein in the country’s powerful internet giants, especially behemoths like Alibaba, which owns a third of Ant. The e-commerce giant’s market capitalisation has given up two-thirds since a 2020 peak, erasing more than half a trillion dollars of value. The stock currently trades at just 12 times forward earnings, well below its five-year average of 21 times, per Refinitiv. Other mainland tech companies have seen similar valuation declines.

Ma’s defenestration unsurprisingly boosted Alibaba and other Ant-affiliated outfits, including the Shenzhen-listed Longshine Technology. It comes amid signs of a broader relaxation on the Chinese internet industry and easing Covid-19 restrictions that should eventually trickle into earnings. In late December, for example, authorities resumed approvals of imported video games. Market leader Tencent’s stock is already up over 10% since the start of the year.

Beijing may be easing up on technology champions, but that might be more expedient than permanent. With the economy faltering after years of pandemic lockdowns while overseas demand cools, China needs big tech giants to stop slashing headcounts for the moment. Alibaba’s revenue is forecast to rise just 3% in the current fiscal year, according to averaged analyst forecasts on Refinitiv. As for Ant, its restructuring will bring it closer to becoming a financial holding company, subject to traditional lending and capital restrictions: a less profitable thesis.

Elsewhere state-owned companies are pushing into the commanding heights of development, while cybersecurity and censorship obligations continue to complicate private investment. There is always risk of over-celebration, but any excuse to reevaluate the prospects of China’s beat-up internet sector will do.

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Chinese financial technology company Ant on Jan. 7 announced its founder Jack Ma will give up majority control of the company as part of a broader “corporate governance optimization”.

Ma held more than 50% of voting rights in Ant via his investment vehicle, Hangzhou Yunbo, which effectively controlled two other entities that owned a combined 53.46% stake in Ant. Under the latest restructuring, his voting share will fall to 6.2%.

Ma’s ceding of control comes as Ant is nearing the completion of its two-year restructuring, with Chinese authorities set to fine the company more than $1 billion, Reuters reported in November, citing sources.


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