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Ant reserves shares for Alibaba, other strategic investors as it readies IPO

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Ant reserves shares for Alibaba, other strategic investors as it readies IPO

Ant Group Co. Ltd. has signed up strategic investors including Alibaba Group Holding Ltd.as the Chinese e-payments company moves ahead with its simultaneous initial public offering in Shanghai and Hong Kong that could become the biggest IPO on record.

Ant, which is 33% owned by Alibaba, filed updated prospectuses for the proposed IPO with the two exchanges overnight and said it plans to price the Shanghai portion of the sale on Oct. 27.

The company will issue no more than 1.67 billion A-shares, or 5.5% of the company's enlarged share capital of 30.38 billion shares, on Shanghai's STAR market. If the IPO is oversubscribed, Ant said it could exercise a greenshoe option to sell up to a total of 1.92 billion A-shares, or 6.22% of the enlarged share capital, on the startup board. A-shares are denominated in yuan and traded in mainland China.

The post-hearing information pack filed with the Hong Kong stock exchange on Oct. 21 left out details of the number of shares it proposes to sell via the bourse. However, the document filed in Shanghai said the Hong Kong tranche will also be for 1.67 billion shares with a similar greenshoe option.

The company has yet to announce the launch date for the sale.

Ant's dual-listing plan has been pushed back since it filed preliminary IPO documents in Hong Kong and Shanghai in late August. Billy Leung, Hong Kong-based director of Equity Research at Haitong International Securities, told S&P Global Market Intelligence that the coronavirus pandemic may have been a factor in the delay.

"The Ant IPO has actually been planned for a long while," he said. "If not for the COVID-19 outbreak, I would have imagined that the IPO could have taken place much earlier. That said, I don't think the timing of the U.S. election [on Nov. 3] was of concern."

Ant has faced some bumps as it prepared for the mega-IPO. A Reuters report on Oct. 14 said that the U.S. State Department recently proposed to the Trump administration to add the Chinese payments giant to a trade blacklist. Analysts responded that a restriction of the sort will have limited earnings impact on Ant, which derived less than 5% of its total revenue from outside China in the first half of 2020.

On Oct. 13, another Reuters report said that China's securities regulator is looking into a potential conflict of interest in the IPO sale, which alleges that Alipay will be the only third-party channel through which retail investors could subscribe to five Chinese mutual funds investing in the IPO. The result of the probe is not known, though the China Securities Regulatory Commission gave its go-ahead for the IPO, according to a Nov. 21 post on the regulator's Weibo official account.

Moving ahead

In the revised prospectus filed in Shanghai, Ant Group said it plans to reserve 1.34 billion A-shares for strategic investors ahead of the public offering. That is about 80% of its total A-share offering, and 69.57% if the greenshoe option is exercised.

Ant said it has signed agreements with nine strategic investors for the Shanghai offering. Zhejiang Tmall Technology Ltd., 100% owned by Alibaba, agreed to subscribe to 730 million A-shares in the IPO.

Closed funds from eight Chinese fund management companies also subscribed to an undisclosed number of IPO shares. The subscribers include E Fund Management Co., China Universal Asset Management Co., China Asset Management Co., China Merchants Fund Management Co., China Southern Fund Management Co., Harvest Fund Management Co., Penghua Fund Management Co. and Zhong Ou Asset Management Co.

The revised prospectus also updated the financial information as of end-September, from the June quarter numbers it disclosed in the previous document. Ant Group's net profit in January-to-September stood at 69.55 billion yuan, up 74.3% from 39.91 billion yuan a year earlier. Revenue rose 42.6% to 118.19 billion yuan in the nine-month period. Alipay's monthly active users also rose to 731 million as of end-September, from 711 million three months prior.

Ant will hold an online investor roadshow to promote its shares on Oct. 22-23 and Oct. 27, according to a separate filing by the company.

"Investors have been well planned for this IPO. There would definitely be some liquidity movement in light of the approvals, but nothing material," Leung said.

Ant's listing will likely be the world's largest initial share sale, many analysts have predicted, surpassing Saudi Arabian Oil Co.'s $29.4 billion IPO in 2019.

As of Oct. 21, US$1 was equivalent to 6.65 Chinese yuan.