Major fintech's dual IPO listing plan underscores pull of Chinese boards

0 Comment(s)Print E-mail Beijing Review, August 7, 2020
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A traveler pays digitally for her purchases at the Hong Kong International Airport on April 1, 2019, using facial recognition technology-based Alipay payment. [Photo/Xinhua]

On July 20, Ant Group, the fintech arm of Alibaba established in 2014, announced it would launch initial public offerings (IPOs) both on Hong Kong Stock Exchange and the Science and Technology Innovation Board of Shanghai Stock Exchange (SSE), popularly known as STAR Market, consolidating the trend of dual listing among Chinese companies.

Four days earlier, chipmaker Semi-conductor Manufacturing International Corp. (SMIC) got listed on STAR Market, following an earlier debut in Hong Kong. Electric vehicle maker Hozon Auto has also announced its plan to list on STAR Market in 2021.

Ant Group runs Alibaba's digital payment and lending service platforms such as Alipay, Alipay Wallet, Yu'ebao and Ant Credit. The company, with an anticipated valuation of $200 billion, said it hopes to further its technological innovation and promote digital upgrading of China's service industry through the listings.

According to media reports, it is likely to raise $10-$20 billion on STAR Market, which will make it the biggest IPO on the A-share market. Wang Pengbo, an analyst at consultancy Analysys, told The Beijing News that Alipay holds over 53 percent of the mobile payment market share in China. Given its business expansion based on mobile payment and online financial services, the high valuation is within expectations.

The trend shows the attraction and global competitiveness of STAR Market for tech companies in China, SSE said in a statement.

Triggering a trend

STAR Market started trading in July 2019 with relaxed rules to allow listing by tech firms in different phases of growth and with different equity structures. In March, SSE announced the board would be opened further to fintech enterprises and technological service providers. By July 22, 140 companies worth 2.8 trillion yuan ($400 billion) were trading on the board.

An increasing number of Chinese enterprises are seeking to list in both the mainland and Hong Kong as the stock markets lower their threshold and widen access. Alibaba was the first to have a second listing in Hong Kong last year, followed by other Internet giants including NetEase and this year.

Yin Zhentao, an associate researcher with the Chinese Academy of Social Sciences, told The Beijing News the rapid development of China's capital market due to the introduction of a registration-based IPO system and the status of Hong Kong as an international financial center have made both the markets equally appealing. For registration-based IPOs, the companies have to simply register with the board, unlike the prevailing approval-based system in which they need approval from China Securities Regulatory Commission, a process that may take several months.

Dual listing began to trend with the rise of China Concept Stocks, Chinese companies which first listed outside the Chinese mainland to facilitate foreign investment and then returned home for a second listing amid growing uncertainties in China-U.S.

relations, which have also created uncertainties for Chinese investors in the United States. More domestic Internet giants may follow suit, Dong Yizhi, finance and compliance lawyer of Shanghai Joint-Win Law Firm, told China High-Tech Industry Herald.

STAR Market and Hong Kong Stock Exchange have a complementary role. Listing in Hong Kong can facilitate access for international investors while the Shanghai board gives them an easier entry to the mainland market.

Dual listing "will allow more market players, including individual stockholders, to share the benefits of the growth of China's digital economy," Yin said.

Benefits for Ant

Derived from Alipay, the mobile payment platform based on the QR code system launched in 2004, Ant Group has developed businesses covering online payment, wealth management, loans and insurance. Alipay obtained its Internet finance license for offering third-party payment services in 2011 and by March 31 this year, there were around 900 million Alipay users in China. It also has collaborations in Hong Kong as well as eight countries including the Republic of Korea and Thailand. Alipay's online payment services cover over 200 countries.

During its growth, Ant Group has completed several rounds of financing. In its last major fundraising in 2018, investors put $14 billion into the company, which was then valued at $150 billion. The dual listing will see it transform from a financial service provider into a fintech firm.

Jing Xiandong, executive chairman of the company, said in a press release on July 20 that becoming a public listed company will enhance Ant Group's transparency, including to its customers, business partners, employees, shareholders and regulators.

The participation of Ant Group in STAR Market, in turn, will also enhance the market capitalization and influence of the latter and attract more large investment institutions, Dong Dengxin, Director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told Beijing Review.

Capitalization concerns

While STAR Market has also seen rapid growth, its capacity to embrace large companies has still not been fully tested. Shanghai-based information provider Wind Information's analysis is that the market capitalization of Ant Group, with its $200-billion valuation, will constitute more than 51 percent of the total value of the board when it lists.

Yan Kaiwen, an analyst with China Fortune Securities, said the listing may cause temporary fund shortage. However, it will not lead to great shocks.

As SMIC's listing shows, STAR Market is gearing up to include giant enterprises. Its efforts will pay off in the long term when Ant Group, as a blue-chip enterprise, begins to attract more investors with steady growth.

According to Yan, more people are converting household savings into funds in the capital market and investment in wealth management and insurance funds is being encouraged.

Besides Ant Group, more fintech enterprises such as JD Digits, the fintech subsidiary of China's online marketplace, have also recently unveiled plans to list on STAR Market.

"The growth of such companies shows the high-quality development of China's economy. The listing will be a trend that will benefit the sci-tech board, investors and the capital market," Wang said.

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