Alipay Owner to Start Shanghai IPO Process as Soon as 2016

  • Alibaba affiliate said to meet need for 3-years of profit
  • Dual listing with Hong Kong said to be desired option

Alipay Owner Said to Plan Shanghai IPO

Alibaba Group Holding Ltd.’s finance affiliate is planning an initial public offering on Shanghai’s main board in what could be China’s highest IPO valuation since 2010, according to two people familiar with the matter.

Zhejiang Ant Small & Micro Financial Services Group Co. has been profitable for three years, enabling it to meet the listing requirements, and may begin the process as soon as this year, the people said, requesting not to be named because the matter is private. The owner of Alipay, China’s most popular payments system, prefers a dual listing with Hong Kong if it gets regulatory approval, the people said.

Ant Financial, which is controlled by Alibaba founder Jack Ma, dominates payments on China’s biggest e-commerce platforms through Alipay and also manages Yu’E Bao, the nation’s largest money-market fund. The company is currently targeting a private round of fundraising for at least $3.5 billion at a valuation of about $60 billion, people familiar with the matter said in April.

Alipay, one of the more recognizable names in online finance and consumer payments, would be the largest Web player by far on mainland bourses.

“China doesn’t have an Internet company of this scale and influence, so it could enjoy a significant premium in value if it lists in the country,” said Li Muzhi, a Hong Kong-based analyst at Arete Research Services LLP. “A lot of the potential retail investors are also Ant Financial’s users.”

Ant Financial declined to comment in an e-mailed statement.

China’s stock listing rules require companies to be profitable for at least three years and accumulate a profit of more than 30 million yuan ($4.6 million). The entities also need to generate accumulated cash flow of at least 50 million yuan, or post a total of 300 million yuan for revenue in the latest three years, according to the regulations.

Ant Financial meets those measures, said the people, who have direct knowledge of its earnings. The people didn’t say how much the company would seek to raise or what valuation it would have at listing.

An IPO at a $60 billion valuation would be the biggest on the mainland since Agricultural Bank of China Ltd. listed in Shanghai in 2010.

Ma, China’s second-richest man according to the Bloomberg Billionaires Index, said last year he was open to a Hong Kong listing if regulators welcomed it. Alibaba’s own plans to list in Hong Kong in 2014 were derailed because the city wouldn’t waive a ban on multiple share-class structures and the e-commerce operator instead held a record IPO in New York.

Alibaba is entitled to a stake of about one-third of Ant Financial with regulatory approval, according to a 2014 filing to the U.S. Securities and Exchange Commission. Alibaba has perpetual rights to 37.5 percent of the finance arm’s pretax earnings until it acquires the stake, the filing said.

Ant Financial paid Alibaba 502 million yuan in the December quarter, compared with 411 million yuan a year earlier, according to an Alibaba filing. That implies Ant Financial had pretax profit of at least 1.3 billion yuan for the period. The company posted net income of 333 million yuan in 2011, according to filings from the local branch of the State Administration for Industry & Commerce.

“As for Alibaba, unless it gets approval to buy the one-third stake in Ant, investors have already factored in the profit-sharing benefits it’s receiving,” Arete’s Li said.

An alternative option would be for Alibaba to receive a one-time payment equivalent to 37.5 percent of the value of Ant Financial determined prior to its IPO, which would amount to at least $22.5 billion based on its current valuation.

The agreement was brokered after a dispute between Alibaba and Yahoo! Inc. in 2011. At the time, Alibaba transferred Alipay into an entity that was controlled by Ma, citing concerns that it wouldn’t be permitted to conduct business in China while it had foreign ownership.

Ant Financial has evolved from an outsider in an industry that needed “stirring up,” as Ma described two years ago, to an online giant now working with the largest state-owned players. The country’s sovereign wealth fund China Investment Corp. and an investment vehicle of China Construction Bank Corp. are leading its latest round of fundraising, people have said. Ant Financial also counts the national social security fund as a backer.

Ant Financial’s micro lending business handled about 30 billion yuan of loans as of January. More than 200 million users buy financial products through Ant Financial via services including Yu’E Bao and Zhao Cai Bao, a platform that lets small businesses and individuals borrow from investors, the company said in August.

JD.com Inc., Alibaba’s largest competitor, said its finance unit raised 6.65 billion yuan in January, according to an announcement.

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