Alibaba Finance Arm Is Valued Above $40 Billion in Latest Funding Round

Alibaba Group Holding Ltd.’s finance affiliate, which runs China’s biggest online payments business, closed a private placement valuing the unit at more than $40 billion, according to two people familiar with the matter.

Zhejiang Ant Small & Micro Financial Services Group Co. also will open an Internet bank, called MYbank, on June 25, the people said, asking not to be identified because the details are private. Ant Financial is controlled by Alibaba Chairman Jack Ma.

Ant Financial sold stakes to external investors, including China Development Bank Capital Co., one of the people said. China’s National Social Security Fund has become a strategic investor, the finance arm said on its official microblog account, without giving details of the investment. The pension fund acquired about 5 percent, Wang Zhongmin, a vice chairman of the fund, was cited as having said in a Caixin.com report.

Ant Financial declined to comment in an e-mail. CDB Capital didn’t respond to an e-mail seeking comment, and a person who answered the general phone line said the company didn’t have a public-relations office. Phone calls to the social security fund’s Beijing-based press office went unanswered.

The finance affiliate plans an initial public offering next year that includes a partnership structure allowing top management to nominate a majority of directors, people familiar with the matter have said.

Spun Off

Ma spun off the finance operations into a new company he controls in 2011, citing the risk of foreign ownership restrictions. Yahoo! Inc. and SoftBank Corp. held a majority of Alibaba at the time.

Prior to Alibaba’s record $25 billion IPO in September, the companies struck a new deal that entitled the e-commerce operator to a share of earnings at Ant Financial, which is moving into new businesses, including money-market funds. Alipay, which has more than 800 million registered users, is a service similar to PayPal.

Alibaba is entitled to either a third of Ant Financial shares or a one-time payout equal to 37.5 percent of the equity value, according to Alibaba’s IPO prospectus.

Alibaba also holds perpetual claim to 37.5 percent of Ant Financial’s pretax earnings until it receives a third of the financial arm’s equity.

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