Mega-IPO in Hong Kong: why Alibaba is bringing Ant Group to the stock exchange

Alibaba pondered the listing of the fintech "unicorn" Ant Group. Its value is estimated at $200 billion. RBC Investments found out from experts why Hong Kong was chosen as the site and what are the prospects of this IPO

Internet giant Alibaba Group intends to hold an IPO of its subsidiary Ant Group - the world's largest player in the mobile payments market. This was reported by Reuters, citing statements of two sources familiar with the situation. Although Ant Group called the information about the upcoming IPO false, the news managed to affect the mood of investors. Alibaba's U.S. stock jumped 8 percent in July 8 trading. The next day, the company's shares on the Hong Kong Stock Exchange also rose - as of 12:40 GMT on July 9, the paper rose by 10%.

Reuters sources say that ant Group is scheduled to be based in Hong Kong. According to the agency, 5-10% of the shares of the fintech company will go on sale.

Ant Group is a Chinese fintech company, the largest player in the mobile payments market in China. He also deals with lending, insurance, asset management, and provides online banking services. Alibaba Group owns 33% of Ant Group.

Why Hong Kong, not the UNITED States?

Choosing a place for an IPO looks logical for a number of reasons, says Alexei Kirienko, managing partner of the investment company EXANTE. According to him, accommodation in Hong Kong is a development of the trend for localization. "Companies from Russia increasingly prefer to trade in Russia, while companies from China prefer to have shareholders in China and Hong Kong," the expert explained to RBC Investments. "In addition, the geopolitical situation in the world has changed, the U.S. began to be unfriendly to the placement of Chinese companies on U.S. exchanges. In the future, U.S. lawmaking could pose a serious threat to Chinese companies."

In addition, Kirienko adds, Hong Kong is one of the world's largest financial centers, which is considered a "showcase" of China. Its size is sufficient to attract the necessary amount for Ant Group.

Denis Ikonnikov, the portfolio manager of the company, agrees with the political factor when choosing a platform for the placement. "The IPO needs to be viewed through the prism of strained political and economic relations between China and the United States," he said, stressing that the price of accommodation in the U.S. may be lower than in Hong Kong.

Increased transparency and revenue
Reuters estimatesthat last year Ant Group's revenue was 120 billion ($17.1 billion), with net profit of ¥17 billion ($2.4 billion).

Aleksey Krichevsky, an expert at the Academy of Finance and Investment Management, noted that entering the stock exchange automatically means increasing the company's transparency, which will help attract new partners and customers - especially given that in recent years Ant Group has been trying to position itself not as a payment system, but as a technology company. "The profits of both fintech holding and Alibaba may increase significantly," Krychevsky concluded.

Gaining public status will allow to win the current shareholders of Alibaba from the growth of shareholder value, added the head of analytical research of the Higher School of Finance Management Michael Kogan. However, the expert warns that the window of opportunity for such an IPO may be short. A negative factor here will be both the season of quarterly reports starting next week, which will reflect the damage from the pandemic, and the possible deterioration of the epidemiological situation with COVID-19.

Alibaba stock prospects

Alibaba's U.S. shares rose 51 percent after a major drawdown in March. Since the beginning of the year, the quotations have increased by 26%.

Oksana Kholodenko, a leading expert on international markets at BCS Broker, called Alibaba's outlook positive. In her opinion, against the background of the coronavirus pandemic, interest in online trading and cloud services, which Alibaba is actively developing, has grown markedly, and this may turn into a long-term trend.

"China's e-commerce market is the largest in the world. In addition, Alibaba is actively expanding beyond China. In the coming years, the company's revenues may continue to grow at double-digit rates," the BCS analyst concluded.

According to Denis Ikonnikov, an update can be expected before the end of the year Shares  Alibaba's historic high and their move to the $300 mark (trading on July 8, the paper finished at $268.8). Alexey Krichevsky predicts that by the end of the year the shares could rise to $350. The analyst added that the average value of forecasts on the paper is at the level of $285. Mikhail Kogan agreed with his colleagues, who noted that Alibaba shares look inexpensive against the competition and are able to continue to grow if rumors about the upcoming IPO ant Group are confirmed.