A blockbuster listing of Ant Financial, the fast-growing electronic payment affiliate of China’s leading tech group Alibaba, has again been delayed as it continues to burn through cash and come under pressure from Beijing’s crackdown on non-traditional financial institutions.
Ant was valued at $150bn in its last private fundraising in June, a round that bankers said paved the way for an initial public offering as early as this year.
Since then, however, the battle for China market share with the payments arm of rival Tencent has erased profitability and yet again bumped IPO plans further into the future. Two people familiar with the process said a listing was unlikely before the end of 2019, with one saying it was “years” away.
Ant Financial reported a loss in the first three months of the year, according to Alibaba’s last earnings announcement. Alibaba will report second-quarter results on Thursday.
This year has already featured a string of listings by unprofitable but fast-growing Chinese start-ups and more are hoping to follow suit next year — including ride-hailing app Didi Chuxing, the second biggest private tech group after Uber, which it chased out of China in 2016.
Ant is also under pressure from Beijing’s efforts to tighten control of non-traditional financial groups, whose rapid rise in recent years has encroached on the turf of state-owned banks.
“There are so many challenges to the business model of Ant and other non-banks,” said one analyst who requested anonymity. “I am not surprised that they once more are postponing their IPO.”
The decision to delay Ant’s listing was made several months ago, according to two people with direct knowledge of the matter. Since then, the business environment has continued to deteriorate while liquidity in China has tightened. Bankers also said that Ant, backed by deep-pocketed Alibaba, did not need to raise cash.
Ant said it had never had a timetable for listing, and played down the regulatory threats to its business. “A regulated and orderly market is good for players like us and we view compliance as a prerequisite to doing business,” said a spokesperson. “We have proactively engaged the regulators and they have been supportive of our efforts to promote financial inclusion.”
Despite its instance there was no timeframe for an IPO, investors in Ant’s last funding round said they were told a public offering would follow later this year or next.
The crackdown on financial innovation by Chinese regulators has had a big impact on listed internet consumer lenders, whose share prices dropped more than 50 per cent from November to mid-July, according to a report from UBS.
“In the recent credit downgrade, delinquency rates have almost doubled,” UBS added. In the first half of 2018, about 600 peer-to-peer lenders closed, it calculated.
Ant is far from the only non-bank affected by the changing regulatory environment. Non-banks that began life as P2P lenders, such as Lufax and Dianrong, are delaying their plans to list as they scramble to diversify away from that line of business
“It isn’t just Ant Financial, it is everyone,” said the head of one Chinese private equity firm. “Beijing is tightening financial regulation because they think the innovation has gone too far. It will take at least all of next year for these companies to recover.”
Ant and Tencent have both argued they differ from most non-banks because their use of big data gives them credit scoring superior to that of the banks. They also argued banks remained unwilling to do consumer lending beyond mortgages.
Ant’s listing plans were originally put on ice last year, at which time it was valued at $60bn. Bankers and lawyers blamed the need to secure regulatory approval and to focus on building the business.
In February this year Alibaba restructured its relationship with Ant, jettisoning a profit-sharing arrangement in favour of a direct equity stake of 33 per cent. It followed that up with the $10bn funding round in June, which valued the group at $150bn.
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