Ahead of an expected initial public offering (IPO), Alibaba’s investment arm Ant Financial has secured $10 billion in funding from global and local investors, and declared a valuation of $150 billion — more than double its valuation after its last funding round in April 2016, and catapulting it past Uber’s $69 billion valuation to become the world’s largest unicorn.
The time frame of the IPO has not been publicly declared, but Reuters reported that Ant was planning to list in China and Hong Kong in 2019, according to a fundraising document. Whenever it happens, it’s safe to say that a $150 billion valuation would make Ant’s IPO one of the biggest ever, putting it ahead of Facebook’s $104 billion IPO in 2012 and behind Alibaba’s $168 billion IPO in 2014. The company was initially only looking to raise $5 billion, half of what investors ended up wanting to contribute.
Reasons To Invest
Investors were clearly optimistic about Ant’s future after watching it diversify into credit services, asset management and online banking since spinning off from Alibaba four years ago when the Chinese eCommerce giant went public (Ant also owns the Alipay payment platform). Ant has additionally invested in several internet-based startups, such as the Chinese bike-sharing company Ofo, food delivery app operator Ele.me, and Indian payment company Paytm.
As Ant expands its footprint into wealth management, consumer lending and overseas markets, it has posted a 65 percent leap in profits this fiscal year. It posted 9.18 billion yuan ($1.4 billion USD) in pretax profit in the fiscal year ending in March, Bloomberg reported. Oh, and it has 870 million annual active users globally.
Can Ant Afford To Go Public?
The above are all good reasons for investor confidence but, leading up to the most recent earnings report, Bloomberg wasn’t so sure. Ant and Alibaba have a profit-sharing arrangement, by which Alibaba takes a 37.5 percent cut of Ant’s pretax profits, including royalties and other fees. The deal was established in the lead-up to Alibaba’s 2014 IPO.
Bloomberg noted that, looking at this payout in the December quarter, the amount had dropped substantially from 2 billion yuan in the September period to just 193 million yuan in December.
Conclusion? Ant’s earnings did not seem to indicate the company would be ready for a share sale anytime soon. Even when Alibaba announced plans to acquire 33 percent of Ant, sparking speculation that the eCommerce giant may be planning to take its investment arm public, Bloomberg’s conservative stance was that Ant couldn’t afford to keep paying out 37.5 percent of its pretax income, leading Alibaba to help it out by taking an equity stake.
A Happier Ending
It’s clear that investors felt differently. Sources told Reuters that the amount and investor lineup have been finalized, as of Tuesday (May 29), and the transfer of funds is underway.
The $10 billion of investments came from local and global sovereign wealth funds, including China’s sovereign wealth fund China Investment Corporation, Singapore’s sovereign fund GIC Private Limited, Singapore state investor Temasek Holdings, China’s National Council for Social Security Fund, and Malaysian sovereign fund Khazanah Nasional Berhad.
Also participating as lead and major investors were private equity firms, including U.S. firm Warburg Pincus and private equity firm The Carlyle Group. Venture capital was provided by Sequoia Capital, a firm which normally invests in early-stage startups.