[HONG KONG] Alibaba Group Holding's finance arm plans to use a partnership structure to allow top management to maintain control of the company's board after an initial public offering, according to people familiar with the matter.
The partners in Zhejiang Ant Small & Micro Financial Services Group will nominate a majority of directors in a structure similar to that used by Alibaba when it went public last year, said the people, asking not to be identified because the matter is private. The finance business was valued at more than $40 billion in a recent round of fundraising, another person said.
Ant Financial owns Alipay, China's biggest online payment system, and also operates a bank, a money-market fund with 579 billion yuan (S$128.7 bilion) of assets and a credit-scoring service. The finance business, controlled by Alibaba founder Jack Ma, could hold an initial share sale as early as 2016, people familiar with the matter said in January.
Alibaba and Ant Financial declined to comment about plans for the IPO in an e-mailed statement. The company is planning an A-share sale in China, a person familiar said in January. The partnership structure isn't allowed by Hong Kong authorities, one of the reasons cited by Alibaba for listing in New York.
Analysts value Ant Financial at US$56.5 billion, based on the average of four estimates compiled by Bloomberg News. At more than US$50 billion, the company would rank among the top 10 publicly traded financial institutions in China by market value, according to data compiled by Bloomberg.
That valuation also is about twice the minimum threshold required for an Ant Financial IPO, according to Alibaba's prospectus before its September share sale.
Mr Ma transferred Alipay out of Alibaba in 2011, putting the business into an entity that later became Ant Financial. He cited concern it wouldn't be permitted to conduct business in China given its foreign ownership, with Yahoo! Inc. and SoftBank Corp. controlling a majority of the e-commerce company at the time.
That move was criticized by Yahoo, which said it wasn't informed at the time, and the companies subsequently agreed on compensation.
Alibaba is entitled to either a third of Ant Financial shares or a one-time payout equal to 37.5 per cent of the equity value, according to the company's prospectus for the Hangzhou- based company's record US$25 billion IPO in September. Alibaba also holds perpetual claim to 37.5 per cent of Ant Financial's pretax earnings until it receives a third of the financial arm's equity.
Seven of Alibaba's current 30 partners hold executive positions at Ant Financial.
To become an Alibaba partner, a person must have worked for the company or its affiliates for at least five years and hold important positions, according to the prospectus.
The partners of Alibaba are allowed to nominate a majority of the board for approval by shareholders, whose votes all have the same value. If a nominee is rejected, the partners have the right to appoint someone else to serve on an interim basis until the next general shareholder meeting, according to its prospectus.
Ant Financial would adopt similar rules, the people familiar said.
Ma owns about 49 per cent of Ant Financial and will have his stake reduced to a percentage not exceeding his Alibaba investment, according to the September prospectus. His Alibaba stake stood at 7.8 per cent as of September.
Employees, including Mr Ma, would own about 40 per cent of the stake in Ant Financial in the future, the company said in October. External investors will hold about 20 per cent stake, the company said at the time.
Alipay has more than 800 million registered users. Alipay's mobile application has 190 million active users and handles 45 million transactions a day, the company said in October.