alibaba ant financial

Alibaba stock (NYSE: BABA) stock is trading higher in US premarket price action today after Chinese regulators allowed Ant Financial to raise more capital. Alibaba holds a third of Ant Financial’s stake.

The China Banking and Insurance Regulatory Commission approved Ant Financial’s request to more than double its registered capital for the consumer unit. After the restructuring, Ant Financial would still be the majority stockholder of the unit and would hold over half of the stake.

Sunny Optical Technology and an entity backed by the Hangzhou government would hold the remaining stake.

Alibaba and DiDi were the face of China’s tech crackdown that began in 2020 and reached its epitome in 2021.

Ant Financial was set to go public in 2020 and received bids above $3 trillion. The company was looking to raise around $34 billion from the IPO which would have valued the fintech giant at around $310 billion.

However, Chinese regulators blocked the IPO at the last moment. Notably, Ant Financial’s founder Jack Ma made critical comments against the country’s regulators ahead of the IPO. It is not common for business leaders to criticize regulators of Communist party officials in China.

Ant Financial was set to become the largest IPO ever and beat the record of Alibaba. However, China had different plans and blocked the IPO. Jack Ma was also not seen in public for months after that before reappearing in online interaction in early 2021.

Alibaba Stock Rises as Ant Financial Gets Permission to Raise Capital

Last year, Alibaba stock fell to its lowest level in years. US-listed Chinese companies faced the double whammy of tech crackdown in China and regulatory scrutiny in the US. In 2021, China’s tech crackdown took a toll on US-listed Chinese shares.

DiDi was delisted from the US markets within months of its IPO as China raised concerns over data privacy.

Ant Financial has also been working for months with Chinese regulators to restructure its business. The permission to raise more capital for the consumer business is a step in the right direction for Ant Financial.

This would also pave the way for an eventual IPO of the company. We have a list of some of the upcoming IPOs in 2023.

Commenting on the move, Winston Ma, adjunct professor of law at New York University said, “This is a positive start of the steps that Ant Financial needs to go through [with] its restructuring process under the supervision of the CBIRC and PBOC.”

Chinese Economy Sagged in 2022

Chinese economy sagged in 2022. Along with the structural slowdown, the country’s now abandoned zero-COVID policy also took a toll on economic growth. In the June quarter, Alibaba reported its first YoY fall in revenues since it went public.

While sales growth improved to 3% in the September quarter, it was still quite low by historical standards.

Tony Xu, Alibaba’s CFO termed the growth as “healthy” and said, that the growth came “in spite of the impact on consumption demand by the COVID-19 resurgence in China as well as slowing cross border commerce due to increasing logistics costs and foreign currency volatility.”

The company’s CEO Daniel Zhang said during the earnings call, “We believe that Covid will ultimately pass, that our society, our economy, and our lives will eventually return to normal, and that the massive potential of China as the world’s second-largest economy will be further unleashed.”

Ant Financial Funding Approval Shows China is Now Taking a Soft Stance

China’s hard tech crackdown took a toll on several sectors of the economy and Ant Financial’s valuations also plummeted. While Ant Financial is still a private company, there is a guide on investing in pre-IPOs.

With the funding approval for Ant Financial, China has signaled that it is now willing to take a softer line amid the sagging economy. It reportedly ended its zero-COVID-19 policy after Foxconn alerted it of its repercussions on China’s image as a manufacturing powerhouse.

Incidentally, Foxconn’s iPhone production has now reached near-normal levels. However, Apple now has a new problem and is facing a slowdown in iPhone demand.

Yesterday, Apple’s market cap fell below $2 trillion for the first time since 2021 on demand concerns. Tesla stock too fell to a new 52-week low on the first trading day of 2023 itself.

Meanwhile, Chinese stocks defied the market sell-off yesterday, and Alibaba is trading sharply higher today as well.

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