What you need to know about Jack Ma's Ant Group as IPO looms

Hangzhou, China

BILLIONAIRE Jack Ma's Ant Group is poised to pull off what could be the biggest initial public offering ever by simultaneously listing in Hong Kong and Shanghai.

It is said to be gunning for a valuation of US$225 billion, making it the world's fourth-largest financial company.

A 2011 offshoot of Chinese giant Alibaba Group Holding, the firm has defined and dominates the Chinese payments market through its ubiquitous Alipay app. It also runs the giant Yu'ebao money market fund and the Huabei and Jiebei consumer lending units.

Based in Hangzhou, a sprawling metropolis south of Shanghai, its ambitions run much deeper than just finance.

Here's a thumbnail look at the business units and the challenges faced by the firm.

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For consumers wary about online payments, the service was a hit and quickly spread to other platforms.

The mobile version, launched in 2009, once held 75 per cent of the market, but has seen its share slide to about 55 per cent in competition with Tencent Holdings' WeChat Pay.

Alipay has 711 million active users, mostly in China, who tap it to buy everything from a quick coffee to even property, generating US$17 trillion in payments in the 12 months through June.

But it is also becoming less and less important to Ant and contributed 36 per cent of its revenue in the first half of this year, down from more than 50 per cent just two years ago.

Losing ground in the payments market was one reason that Ant called off a previous plan for an IPO already in 2017, people familiar said at the time. It is now a much more diversified company.

Ant uses some of its capital for these loans, but the bulk of the money comes from banks, with the firm acting as gateway. The platforms made loans to about 500 million people in the 12 months through June, charging annualised rates on its smaller loans of about 15 per cent.

Their lending could swell to almost two trillion yuan (S$396 billion) by 2021, according to Goldman Sachs Group Inc. The firm's CreditTech business, which includes Huabei and Jiebei, is its single biggest revenue maker, contributing 39 per cent of the total in the first six months of the year.

The company is now applying for a licence to set up a consumer finance company. The new entity would boost Ant's lending capacity since consumer finance companies are allowed to lend out 10 times their capital, far surpassing the two to three times leverage of Ant's existing micro-loan companies.

Tianhong Yu'e Bao Money Market Fund is one of the world's largest of its kind with about US$173 billion in assets. But it has shrunk from its heyday after regulators stepped in to limit how much each investor could put in the fund. In 2018, Ant opened the platform to third parties. Now it offers fund options from more than 20 asset managers.

It has partnered with companies including Invesco, which has seen one fund grow 300-400-fold in size as of March. This year, Ant teamed up with Vanguard Group to offer a robo adviser to allow the US giant to make headway in China. The unit that Yu'ebao is part of at Ant accounted for 15 per cent of revenue this year, which is about unchanged over the past three years.

Challenges

Ant shuttered its Zhao Cai Bao platform after Cosun Group, a Chinese telecom company in the Guangdong province, defaulted on bonds sold via the platform. When Zhao Cai Bao was first created, the vision was to create a platform that allowed small businesses and individuals to borrow directly from investors.

Ant warned in its prospectus that rising US-China trade tension could threaten its business as it gears up for the IPO. If the US were to impose certain sanctions, it could affect Ant's business in South-east Asia and India, for example.

In 2018, Ant's attempt to acquire MoneyGram International, a remittance company based in the US, was unsuccessful. A change in foreign investment regulations in India prompted it this year to halt further investment in Zomato, a restaurant aggregator and food delivery startup.

But the full scope of those that stand behind Ant is unclear, since Junhan and Junao do not disclose inclusive lists of people who receive economic interest either via direct shares or proxy contracts. BLOOMBERG