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After Alibaba Group Holding Ltd. into pieces, the race is on to see which of the six Baby Babas will be the first to list shares on a public stock exchange. After years of scrutiny, including a record fine, an initial bid for one of Alibaba’s divisions would work as a de facto thumbs-up from Chinese regulators. The real prize, however, would be the public sale of the giant subsidiary Ant Group Co.
Alibaba’s grocery chain Freshippo works with China International Capital Corp. and Morgan Stanley are working together to prepare for a Hong Kong listing, Bloomberg News reported last week. The unit was valued at around $10 billion in January 2022 when a new round of funding was being considered. That number may have fallen or risen since then, but it’s tiny compared to other divisions.
Under the old structure, this retail store was part of China Commerce Group, which became Taobao Tmall Commerce Group after the demerger announced in March. Taobao Tmall was the only division that didn’t have the freedom to immediately spin off and go public, but it appears sub-units can do so — meaning Freshippo could become the first.
Cainiao Network Technology Co., the logistics arm and the backbone of Alibaba’s delivery strategy, is likely to beat Freshippo in the public markets. Within days of the restructuring being outlined, news broke that this company could go public as early as late 2023 if CICC and Citigroup Inc. participate in the sale. Cainiao is valued at around $20 billion, Bloomberg News reported in March, making it one of the group’s smallest entities.
Value creation is the mantra used to explain management’s surprise decision to wind up Alibaba: Each division will likely result in a market cap that exceeds the group as a single entity. This may not be wrong and is usually the excuse for companies to split into multiple entities. But its massive size, increasing scrutiny from regulators, and Beijing’s dislike of big, powerful internet companies make the move even more important.
Two years ago, Alibaba was fined $2.8 billion for antitrust conduct related to its policy of forcing merchants into exclusive listings on platforms. With that fine and the company’s promise to improve, we might expect the government to move on.
But then there’s the Ant Group thing. Originally known as Alipay, the fintech business was spun off from Alibaba more than a decade ago and has since expanded to include insurance, investment products and credit. The $35 billion IPO, scheduled for November 2020, was set to be the largest ever. Then founder Jack Ma delivered his now infamous speech in Shanghai, slamming regulators, who retaliated by scrapping the debut while Ma himself shunned the spotlight.
Within months, multiple agencies were involved in reviewing this listing, including the speed with which it was approved. In November, a year after the cancellation, the People’s Bank of China was preparing to fine $1 billion for alleged violations related to a “disorderly capital expansion,” Reuters reported. Last week, the news agency said the charges and sentence would be watered down to around $700 million.
The size of the fine doesn’t mean much given how much money Ant will raise from retail and institutional investors eager to get their hands on China’s hottest fintech IPO.
Above all, it is important that the investigations are concluded quickly and disciplinary measures are taken. As China’s central bank, antitrust regulator and other members of the Beijing bureaucracy approve the final punishment, uncertainty will be cleared away like a dark cloud pouring down rain.
Additionally, the recent delistings ordered by China’s securities regulator underscore the government’s zero-tolerance approach to IPO fraud, which will force companies and their bankers to tread more cautiously. We can expect Ant’s investigation to include a thorough scrutiny of the fintech’s finances, meaning the path to listing should be smooth.
Hong Kong could use the boost. Listings by number and value of deals fell to their lowest level in a decade last year as ongoing disruption from Covid-19 and regulatory uncertainty took a back seat to fundraising. Bloomberg Intelligence estimates the number could top $40 billion this year, boosted by various debuts from Baby Baba and two divisions of JD.com.
There’s a slim chance that Ant’s listing will make it onto this year’s list — global economic uncertainty and ongoing tensions with the US shouldn’t be discounted as the company and its bankers plan their fundraising move. But getting the process started would be a signal that big-tech IPOs are popular again, which could lead to more deals. For Alibaba and Ant, putting the drama of the last few years behind would be the most helpful development they could enjoy.
More from the Bloomberg Opinion:
• Six baby babas beat a big Alibaba: Tim Culpan
• Hedge funds love China. Xi Doesn’t Love Her Back: Shuli Ren
• Asian startups have matured. They had no choice: Andy Mukherjee
This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.
Tim Culpan is a columnist for Bloomberg Opinion covering technology in Asia. He was previously a technology reporter for Bloomberg News.
For more stories like this, visit bloomberg.com/opinion
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