Jack Ma's Ant Group Prepares IPO – Who Will Win Big?

Financials, Technology Author: Zhu Peng Editor: Luke Sheehan Aug 10, 2020 01:40 PM (GMT+8)

A glance at the Hangzhou juggernaut's funding background and equity structure.

Image credit: Ant Group website

► Both local and foreign investors participated in Ant's early-stage fundraising between 2015 and 2018.
► The current ownership structure illustrates that the majority stakes of Ant Group are controlled by Jack Ma, Alibaba and its related executives.
► A significant return can be expected by Ant's early backers, through the IPO of the fintech giant. Beneficiaries include Chinese social security members, foreign pension funds providers and insurance companies.

On July 20, Ant Group, formerly Ant Financial, announced its intention to launch a dual listing on the Hong Kong Stock Exchange and the Shanghai Stock Exchange Sci-Tech Innovation Board, or the Star Market. Valuated at over USD 200 billion by some, Alibaba's fintech affiliate is among the hottest candidates to enter the public markets. Below, we answer a simple question:  who will benefit the most from the Chinese fintech giant's initial public offering?

Who created Ant?

So far, it has completed four rounds of venture funding with a total amount of over USD 22 billion. Existing investors include Temasek Holdings, GIC, China Investment Corporation, Warburg Pincus.

The first round, Series A, was conducted on July 3, mainly invested by China's largest pension fund – the National Council for Social Security Fund (NSSF). The investors also included major Chinese insurance companies – China Pacific Insurance Company, the People's Insurance Company of China and China Life Insurance Assets Management Company. Series A brought Ant Group CNY 1.2 billion and valuation between USD 45 billion and USD 50 billion. This strategic investment from NSSF may have helped Ant with subsequent legal and regulatory issues.

The company carried out its Series B in April 2016, raising USD 4.5 billion – before this round of investment, the valuation of Ant Group reached USD 55.5 billion. Led by China Investment Corporation, the deal also saw participation from Primavera Capital Group, China Development Industrial Bank, China Post Group and CCB International. Ant's CEO Eric Jing said that the capital would be used to enhance risk control, technology and infrastructure.

In order to bankroll acquisitions, Ant further raised USD 3.5 billion through debt financing in May 2017.

Announced in May 2018, the last funding round — Series C — was designed to speed up the global expansion of Alipay payment platform and to develop financial technologies. A total of 10 investors with multinational backgrounds jumped in. Led by Temasek Holdings and GIC, they contributed USD 14 billion in sum. Within only 2 years, Ant's pre-money valuation achieved USD 136 billion. Market watchers called this round the biggest single fundraising by a private company. A few weeks after Series C, Ant further collected an extra CNY 1.6 billion from the China Pacific Insurance Company.

Who owns Ant?

On February 1, 2018, Alibaba announced its acquisition of 33% of Ant Group. In return, the fintech will no longer need to pay for the right to use certain intellectual property owned by Alibaba. Besides, the e-commerce behemoth's founder Jack Ma seemingly believes that equity-related incentives are crucial for the success of Ant Group. Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership collectively own around half of Ant's equity.

Twenty senior executives of Alibaba used to obtain 42% of Ant's shareholding rights through Junao, which is controlled by Jack Ma's fully-owned entity – Hangzhou Yunbo Investment Consultancy Ltd. In March 2014, executives consented to pay CNY 913.2 million for the shareholding and the rest of the shares were then transferred to Junhan, another investment partnership owned by Alibaba's co-founders and executives.

Currently, 28.45% of Ant Group belongs to Junhan and 21.53% pertains to Junao. As a result, Jack Ma, Alibaba and its related employees take an overwhelming majority interest of Ant Group at 83% in total.  

Apart from the mentioned dominant investors, Ant Group does not have shareholders that own interest over 3%. The National Security Fund has acquired 2.97% ownership and another five investors each hold shares between one and two percent. Among those minority interest holders, most of them are investment companies and some are insurance companies such as China Life Insurance and China Pacific Insurance.

Who will win from the IPO?

Referring to USD 237 million profit contribution to Alibaba from Ant in the second quarter of 2019, Alibaba, which owns 33% of Ant, is likely to gain a 20% return through the IPO of its affiliate under the assumption that the amount of profit-sharing between them and the discount rate remains stable.

Besides, American private equity companies Silver Lake Management LLC, Warburg Pincus LLC, and Carlyle Group Inc. each invested at least USD 500 million in the Series C fundraising of Ant, according to the people familiar. At the time, the Chinese fintech company was valued at USD 150 billion, according to Bloomberg's estimation.

Now, it is a common view among most analysts that Ant will be valued over USD 200 billion after its initial public offering. Bank of America provides the market with certain accuracy about Ant's current value at USD 210 billion based on 45 times the company's earnings estimate of the coming year. JP Morgan, using another method for prediction, forecasts the value of China's largest payment platform to be USD 218 billion.

All backed by pension and endowment funds, Silver Lake, Warburg Pincus and Carlyle Group can expect a lucrative return at as high as 40% conservatively if they sell their portion of the IPO at the valuation given by Bank of America. In other words, these three venture capitalists are likely to gain USD 200 million profit each through a two-year investment period.

Canada Pension Plan Investment Board (CPPIB) announced it will put in USD 600 million into a unit of Ant on June 8, 2018. Besides, General Atlantic LLC is said to have invested USD 350 million during the last funding round. Furthermore, Alibaba's long-term partner Credit Suisse devoted nearly USD 100 million in Ant, according to people close to the matter. If this is true, CPPIB is almost certain to get a return of USD 240 million by selling its shares at Ant's IPO. General Atlantic and Credit Suisse will definitely obtain their part of the gain, which may not be as significant as the harvest of the above companies, but should still be considerable.

Besides the mentioned capital providers, plenty of local and overseas participants backed the company during the early funding stage with investment amounts undisclosed to the public. Early investors who entered the game when the company had lower than USD 150 billion will be entitled to get a higher than 40% return rate. For instance, the National Council for Social Security Fund, a sovereign wealth fund of the government of the People's Republic of China, was one of the early investors in Ant Group. The institution financed Ant when it was valued at USD 45 billion in 2015. The exponential growth of firm valuation across the last five years has offered NSSF an incredible investment return rate at over 350%.

The ultimate beneficiaries of Ant's early investment include foreign pension fund providers – teachers and fire-fighters, Chinese citizens who enjoy social welfare, insurance companies and fund suppliers of other private equity or venture capital companies.

Whether those financiers will realize their gain by selling stakes at the IPO is uncertain. According to an industry source, some of Ant's international backers may hold on to their shares and bet on even more significant gain in the future.