Turning The Tide: Ant Group Emerges From Revamp With A Near-Billion-Dollar Fine

Ant Group was slated to make its public debut through a groundbreaking initial public offering (IPO) in 2020. 

But the IPO was canceled days before the offering was scheduled to go live in November 2020, with the Chinese regulatory authorities citing antitrust issues. The blow was directed primarily at popular Chinese billionaire Jack Ma, founder of Ant Group and renowned retail company Alibaba Group Holding Ltd. Alibaba previously held a 33% stake in Ant Group, raising concerns regarding monopolistic behavior by the firms and causing regulators to suspend the IPO. 

Ant Group's scrapped IPO disrupted global capital markets. New regulations were subsequently imposed on the fintech giant, requiring the consolidation of financial units into a holding company and opening up its payments app to competitors while severing improper links between payments and other products, including lending services.

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Scrapped IPO And Record Fines 

Following the IPO cancellation, Beijing initiated a rigorous two-year crackdown on China's domestic tech sector, and the Ant Group was ordered to overhaul and restructure its business to become a financial holding company regulated by the People's Bank of China in late 2020. 

On July 7, the People's Bank of China imposed a fine of 7.12 billion yuan ($985 million) on Ant Group in response to violations of various laws and regulations, including corporate governance, consumer protection and anti-money laundering requirements.

This fine is one of the largest penalties ever imposed on a Chinese internet company and signifies the conclusion of Ant Group's extensive scrutiny and restructuring process, which began after its $37 billion initial public offering was canceled in late 2020. It follows a $2.8 billion fine levied on Alibaba Group for engaging in monopolistic practices in September 2021. 

Nonetheless, Ant Group has made progress in aligning with regulatory requirements. In January, the company received approval to expand its consumer finance business. The fine and the potential resolution of Ant Group's regulatory issues come at a time when China is striving to support private industry amid a challenging domestic economic environment.

In a statement released on July 7, the People's Bank of China noted that most of the outstanding issues in the financial operations of platform companies like Ant Group have been rectified. The central bank now aims to normalize supervision, implying that strict measures such as fines may be easing. Ant Group expressed its commitment to comply earnestly and sincerely with the terms of the penalty while emphasizing its dedication to enhancing compliance governance.

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Future Prospects 

The spotlight may now turn to a potential listing for Ant Group, although the company's valuation has significantly declined over the past 2½ years. It plans to buy back up to 7.6% of its shares as part of an initiative to retain talent and offer investors an opportunity to reduce their stakes in the company following the long-running regulatory crackdown. Each investor will have the option to sell up to 7.6% of their equity rather than completely liquidating their position. Ant Group stated in a press release that the repurchase would value the company at approximately 567.1 billion yuan ($78.5 billion), a 70% drop from its 2020 market capitalization of $280 billion before the scrapped IPO.

By returning some funds to shareholders, Ant Group aims to shift its focus to building business operations and alleviating pressure from pre-IPO investors seeking to exit because of the decline in valuation. Global funds that invested in Ant in 2018, when its valuation was around $150 billion, have grappled with assessing their investments amid the company's slowed profit growth. Analysts expect this buyback plan to entice minority overseas shareholders to reduce their stakes.

Ant Group plans to transfer the repurchased stock into its staff incentive plan to attract and retain talent. The majority of Ant's shareholders — mostly Ant executives — have voluntarily decided not to sell their shares back to the company, demonstrating their long-term commitment. 

Ant Group also has been investing in large-language model technology to enhance its capabilities in artificial intelligence, similar to ChatGPT-style services. The company doubled its spending on research and development efforts in this area since 2019, investing nearly 20.5 billion yuan last year.

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