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China's Ant Group reports profit surge ahead of Hong Kong, Shanghai IPO

China's Ant Group Co. Ltd., which filed for what could be one of the world's biggest IPOs ahead of a simultaneous listing in Hong Kong and Shanghai, said its profit jumped more than 10 times in the first half of 2020 from a year ago, and that it plans to issue at least 10% of its total capital in new shares in the offering.

The company, which was renamed from Zhejiang Ant Financial Services Group Co. Ltd. on July 13, reported that its profit rose to 21.92 billion yuan in the six months ended June 30, from 1.89 billion yuan a year earlier, according to the company's preliminary listing document filed to the Hong Kong stock exchange. Its operating profit for the period rose to 24.90 billion yuan from 4.27 billion yuan.

Revenue from offering microloans, investment and insurance products online rose to 45.97 billion yuan from 29.29 billion yuan in the same period. Revenue from digital payment and merchant services rose to 26.01 billion yuan from 22.99 billion yuan. Total revenue rose to 72.53 billion yuan from 52.54 billion yuan.

Size matters

The document did not disclose the timetable and other details of the offering. A Caixin report cited unnamed sources as saying Ant Group was looking to raise about US$30 billion in the IPO, which could become the world's largest new share offering, beating Saudi Arabian Oil Co.'s IPO in 2019 that raised US$29.4 billion. The prior record was held by Alibaba Group Holding Ltd., which raised US$25 billion in 2014.

The Hangzhou-based company, 33%-owned by Alibaba, started China's first digital payment platform Alipay in 2004. Since then, the company has expanded its product offering to mobile apps for unsecured consumer loans, wealth management and insurance products. In 2013, it launched a money market fund on Alipay called Yu'ebao that has a minimum investment threshold of 1.00 yuan, which, according to a Financial Times report, helped the fund once surpass JP Morgan Chase & Co. as the world's largest money market fund by asset under management in 2017.

As of June 30, Alipay's monthly active users stood at 711 million, up from 659 million as of end-2019. In the 12 months ended June 30, the platform processed digital transactions of 118 trillion yuan, according to the document.

In a separate preliminary listing document filed to the Shanghai stock exchange, Ant Group said at least 10% of its enlarged share capital will be issued as new Hong Kong-listed H shares and Shanghai-listed A shares in the IPO.

Research spending

The document also said that 40% of the proceeds from the IPO will be spent on innovation and research, 30% on improving its digital services and offerings, 20% as working capital and the remainder on developing cross-border payment and merchant services initiatives.

Alibaba is Ant Group's largest shareholder. It is followed by Hangzhou Junhan Equity Investment Partnership, owned by key executives at Ant Group and Alibaba, which holds a 29.86% stake. Hangzhou Junao Equity Investment Partnership, which holds Ant Group's shares on behalf of its employees, owns a 20.66% stake. Jack Ma, the founder of Alibaba, has ultimate control of all three companies that own Ant Group.

In the Hong Kong portion of the IPO, Citigroup Global Markets Asia Ltd., J.P. Morgan Securities (Far East) Ltd., Morgan Stanley Asia Ltd. and China International Capital Corp. Hong Kong Securities Ltd. are joint sponsors for the IPO, while Ampere Partners is the financial adviser to the company.

China International Capital Corp. and CSC Financial Co. will lead the Shanghai offering, in which new shares will be traded on the new Science and Technology Innovation Board, or the so-called STAR board, which is a venue for start-ups and new economy companies.

As of Aug. 26, US$1 was equivalent to 6.89 Chinese yuan.