Alibaba Finance Arm Plans 2016 Initial Public Offering

Alibaba Group Holding Ltd.’s finance affiliate, which runs China’s biggest e-commerce payments business, is planning an initial public offering next year, according to people familiar with the matter.

Zhejiang Ant Small & Micro Financial Services Group Co. has an estimated value of about $50 billion, said the people, who asked not to be identified because the discussions are private. Ant Financial is weighing a private placement before going public, and details of the planned fundraising aren’t finalized, the people said.

China’s National Social Security Fund has been invited to invest in Ant Financial, another person familiar with the matter said. The $50 billion valuation is about twice the minimum threshold required for an Ant Financial IPO, according to Alibaba’s prospectus before its record share sale in September.

“By raising funds through an IPO, the company could have more money to develop a variety of online finance products and cater to smaller businesses,” said Wang Weidong, an analyst at Shanghai-based Internet consultant IResearch. The company has the potential to grow beyond a valuation of $50 billion, he said.

Alibaba Chairman Jack Ma has controlled Ant Financial, including the Alipay payments business, since spinning off the finance operations into a new company in 2011, citing foreign ownership restrictions.

Prior to Alibaba’s own record 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.

Fortune Falls

Rachel Chan, a Hong Kong-based spokeswoman for Alibaba, declined to comment on behalf of both Alibaba and Ant Financial. The National Social Security Fund didn’t respond to a phone message seeking comment.

At $50 billion, Ant Financial would rank among the top 10 financial institutions listed in China by market value, according to data compiled by Bloomberg.

Alibaba’s September IPO raised $25 billion and the stock has surged 32 percent since then. That helped make Ma, who holds a 7.8 percent stake in Alibaba, China’s second-richest man with a net worth of $26.3 billion, according to the Bloomberg Billionaires Index.

His fortune dropped by about $1.4 billion on Thursday after Alibaba’s third-quarter revenue of 26.2 billion yuan ($4.2 billion) missed analyst estimates. The company’s push into mobile curbed its advertising sales growth, and the number of transactions on its Tmall platform grew at a smaller pace.

Government Fight

Alibaba also is embroiled in a dispute with a state regulator, which criticized the company for alleged lax oversight of its websites. Alibaba has a “credibility crisis” fueled by a failure to crack down on shady merchants, counterfeit goods, bribery and misleading promotions, the Chinese government said Wednesday.

Company Vice Chairman Joseph Tsai denied those allegations Thursday and said the company decided to file a complaint to the regulator.

Ma controls the voting rights to Ant Financial, though his holding will be reduced to a percentage not exceeding his Alibaba stake, according to the prospectus.

Ant Financial hasn’t hired investment banks, one of the people said. The company is planning an A-share sale in China while not ruling out a dual listing, another person familiar said.

IPO Deal

Under the terms of last year’s revised agreement, Alibaba is entitled to a payment of at least $9.4 billion if Alipay or its parent hold an IPO. Alibaba also gets the perpetual right to 37.5 percent of the finance arm’s pretax earnings and can buy a stake of about one-third if regulators approve.

Employees, including Ma, would own the shares in Ant Financial not held by new investors and Alibaba, amounting to about 40 percent, the company said in October.

The spinoff of Alipay was a point of contention between Ma and key shareholder Yahoo! Inc., which said it wasn’t informed of the sale at the time, and led to the earlier 2011 agreement on compensation.

Since then, the business has expanded into money markets and controls more than 579 billion yuan in a fund called Yu’E Bao, according to the company’s website.

Alipay, which is similar to PayPal, has more than 800 million registered users. Its mobile application has 190 million active users and handles 45 million transactions a day, the company said in October.

— With assistance by Lulu Chen, Zijing Wu, and Steven Yang

Before it's here, it's on the Bloomberg Terminal. LEARN MORE