Shares of Alibaba (NYSE: BABA) are trading up and down in a volatile manner on several reports concerning the reported IPO plans for Asian fintech giant Ant Group, in which Alibaba has a 33% stake.
Is Ant Group’s IPO Process Back on Track or Not?
Bloomberg News reported first that Chinese regulators are holding talks to revive Ant Group’s initial public offering (IPO), emphasizing the government’s intent to cut back on its crackdown on tech companies that lasted nearly two years.
The China Securities Regulatory Commission (CSRC) reportedly formed a new team to review Ant’s IPO plans, with the fintech company also getting closer to obtaining the long-anticipated license that would make it regulated more like a bank and streamline its share sale plans.
However, the regulator denied the news report from Bloomberg. The saga continued with Reuters saying Ant Group received a green light from authorities to go public. Another twist took place a few hours later after the company itself said it has currently no plans to gu public.
Even though it remains unclear when will Ant be able to obtain the license and revive its IPO, such a move by Chinese regulators would suggest there’s progress on both sides, which could significantly restore investor confidence in the troubled private sector.
Shares of Chinese companies have climbed over the past few weeks after receiving a boost after reports emerged that regulators are planning to end their investigation of the ride-hailing giant Didi Global and allow it to bring back its key apps to the mobile app stores.
The easing of the tech crackdown of Ant, Didi, and other internet companies in the country indicates that Chinese policymaakers are proceeding with their plans to bolster the industry after it has seen a significant slowdown in recent months, just like the broader Chinese economy.
The two-years-long clampdown has battered the private sector in the country, with some investors considering the Chinese internet sector uninvestable.
Bloomberg also reported that Chinese regulators are considering Ant’s plans to list its shares in Shanghai, as a part of the company’s ultimate plan to conduct a dual-listing in Shanghai and Hong Kong.
The fintech company has recently appointed Laura Cha, a Hong Kong stock exchange chairman, as an independent director – a move that was supported by the country’s watchdogs.
Why is Ant Group’s IPO so Controversial?
Chinese regulators halted Ant’s $35 billion IPO two years ago, causing significant damage to investment firms such as Carlyle Group, Temasek Holdings, and others. The move also marked the beginning of a broader clampdown on China’s internet sector, eradicating over $1 trillion of combined market value.
Jack Ma, the founder of Ant Group and co-founder and former executive chairman of Alibaba, stopped appearing in public after criticizing the regulators following their decision to crush the fintech company’s IPO.
Furthermore, numerous other tech executives have stepped down from their corporate roles and ramped up donations to charity to align with China President Xi Jinping’s efforts to reach “common prosperity.”
While a potential revival of Ant Group’s IPO and easing of crackdown measures might return some optimism among investors, it is very unlikely that the sector will achieve its 2020 levels given that a series of regulations have been imposed over the past two years on Ant and its peers.
For example, investment firm Fidelity Investments trimmed its valuation forecast for Ant to roughly $78 billion from $235 billion before the IPO was halted.
Earlier this week, China also gave a nod to its second batch of games in 2022, up from 45 that were approved in the first batch.
After struggling for the most part of last year, tech stocks in China have outperformed US rivals in recent trading sessions, driven by a lift of coronavirus lockdown measures in major cities as well as a series of strong corporate earnings reports.
The Nasdaq Golden Dragon Index is 11% in the red in 2022, while the Nasdaq 100 remains down 23%.
Alibaba shares were trading up and down on Thursday and Friday on conflicting reports concerning Ant Group and its potential IPO plans.