Lintao Zhang
Alibaba (NYSE:BABA) rose some 8% Monday in Hong Kong after founder Jack Ma ceded control of sister company Ant Group, whose planned 2020 IPO fell apart when Ma’s criticism of Chinese regulators got both companies in hot water.
BABA rose as much as 8.3% to 110 Hong Kong dollars ($14.09) before pulling back to 109.6 Hong Kong dollars ($14.04) as of about 11:30 p.m. ET Sunday on news of Ant’s ownership restructuring.
BABA’s U.S. shares, which are each worth eight Hong Kong ones, closed Friday in New York at $107.40. The Hong Kong rally implies Alibaba’s U.S. shares were worth about $112.32 as of around 11:30 p.m. ET Sunday.
Alibaba (BABA) rose following word that Ma − a Chinese billionaire who founded both BABA and Ant − had agreed to a deal that eliminated his effective majority control of Ant Group, a massive Chinese fintech. Alibaba (BABA) owns 33% of Ant.
Ant announced over the weekend that Ma would no longer control 34% of two holding companies that had collectively owned 53.46% of the company:
Instead, he and his holding-company partners would henceforth vote independently and each hold 20% of one holding company that owns 31.04% of Ant Group. That essentially means Ma will only own about 6% of Ant:
Ma’s Rapid Fall From Grace
The 58-year-old Ma, whose estimated $34.1B fortune makes him one of China’s richest people, long served as a poster child for the Asian nation’s market economy. He co-founded Alibaba (BABA) – essentially China’s version of Amazon (AMZN) – in 1999 in his apartment and grew it into one of the world’s largest companies.
BABA’s mobile-payments platform Alipay is China’s answer to PayPal (PYPL), and grew so big that Ma eventually set it and other Alibaba fintech units up as a separate company known as Ant Group.
Ma planned to take Ant public in 2020 in a dual listing on the Shanghai and Hong Kong stock exchanges that aimed to raise a record $34.5B, the highest initial public offering in world history. The IPO would have valued Ant at some $313B.
However, Ma’s fortunes came crashing down days before the offering after he publicly criticized Communist China’s banking regulators during a speech.
Regulators quickly canceled the Ant IPO’s Shanghai leg – reportedly on Chinese President Xi’s personal orders – and the company quickly nixed the Hong Kong IPO as well.
Ma had to meet with top Chinese regulators and even offered to give the Communist government any part of his company that it wanted to take for the public good. Some six months after blocking Ant’s IPO, Beijing fined BABA a record $2.8B for alleged anti-competitive business practices.
Ma, who once gave interviews to 60 Minutes and other Western media, quickly took such a low profile that some wondered if the government had imprisoned him. Some reports say the billionaire now lives in Japan.
The End of an Era
Beijing’s targeting of Ma in many ways marked the start of a broader crackdown on U.S.-listed Chinese tech companies. Many firms abandoned plans to list in New York, while others already trading in America quit the U.S. exchanges.
Such moves came amid an unrelated U.S. crackdown on New York-listed Chinese companies that only hastened many firms’ departure from American markets.
Are Alibaba and Ant on an Upswing?
However, Ma’s relinquishment of Ant Group control, which had been expected since last summer, could now pave the way for regulators to lessen scrutiny of the company and other Chinese tech firms like Alibaba (BABA).
The move could also open the door for Ant to try to revive its IPO, which would presumably serve as a positive catalyst for BABA.
Seeking Alpha contributor Jonathan Weber recently looked at why Alibaba (BABA) has already rallied more than 75% from its lows in just some two months.
