Jack Ma to relinquish control of the Chinese giant Ant

Ant Group founder Jack Ma will relinquish control of the Chinese fintech giant in an overhaul that seeks to draw a line under a regulatory crackdown triggered soon after the massive stock market debut was halted two years ago.

Ant’s $37 billion IPO, which would have been the world’s largest, was canceled at the last minute in November 2020, prompting a forced restructuring of the financial technology firm and speculation that the Chinese billionaire would have to relinquish control.

While some analysts have said a relinquishment of control could clear the way for the company to revive its IPO, the changes announced by the group on Saturday are likely to result in a further delay due to IPO regulations.

China’s domestic A-share market requires companies to wait three years after a change in control to list. The wait is two years on Shanghai’s Nasdaq-style STAR market, and one year in Hong Kong.

A former English teacher, Ma previously held more than 50 percent of voting rights in Ant, but the changes will see his stake fall to 6.2 percent, according to Reuters calculations.

Ma only owns a 10 percent stake in Ant, a subsidiary of e-commerce giant Alibaba Group Holding, but has exercised control over the company through related entities, according to Ant’s IPO prospectus filed with stock exchanges in 2020.

Hangzhou Yunbo, an investment vehicle for Ma, controlled two other entities that together own 50.5 percent of Ant, the prospectus showed.

Ma’s relinquishment of control comes as Ant nears completion of its two-year regulatory-driven restructuring, with Chinese authorities poised to fine the firm more than $1 billion, Reuters reported in November.

The expected punishment is part of Beijing’s sweeping and unprecedented crackdown on the country’s tech titans over the past two years that has slashed hundreds of billions of dollars from their values ​​and reduced revenues and profits.

But Chinese authorities have played down the tech breach in recent months amid efforts to shore up a $17 trillion economy that has been hit hard by the Covid-19 pandemic.

“With the Chinese economy in a very feverish state, the government is looking to signal its commitment to growth, and technology, the private sector is key to that as we know,” said Duncan Clark, chairman of investment advisory firm BDA China.

“At least Ant investors can (now) have a timetable for an exit after a long period of uncertainty,” said Clark, who is also the author of a book on Alibaba and Ma.

Regulatory scrutiny

Ant operates China’s ubiquitous mobile payment app Alipay, the world’s largest, which has more than 1 billion users.

Ant, whose businesses also span consumer lending and the distribution of insurance products, said Ma and nine of the other major shareholders had agreed to no longer act together when exercising voting rights and would only vote independently.

It added that the shareholders’ financial interests in Ant will not change as a result of the adjustments.

Ant also said it would add a fifth independent director to the board so that independent directors would make up a majority of the company’s board. It currently has eight board members.

“As a result, there will no longer be a situation where a direct or indirect shareholder will have sole or joint control over Ant Group,” it said in its statement.

Reuters reported in April 2021 that Ant was exploring options for Ma, one of China’s most successful and influential businessmen, to divest his stake in Ant and give up control.

The Wall Street Journal reported last July, citing unnamed sources, that Ma could relinquish control by transferring some voting rights to Ant officials, including CEO Eric Jing.

Ant’s listing in Hong Kong and Shanghai was derailed days after Ma publicly criticized regulators in a speech in October 2020. Since then, his sprawling empire has been under regulatory scrutiny and undergoing a restructuring.

Once outspoken, Ma has largely stayed out of public view since the regulatory crackdown that has reined in the country’s tech giants and chipped away at a laissez-faire approach that fueled breakneck growth.

“Jack Ma’s departure from Ant Financial, a company he founded, shows the determination of the Chinese leadership to reduce the influence of large private investors,” said Andrew Collier, managing director of Orient Capital Research.

“This trend will continue the erosion of the most productive parts of the Chinese economy.”

As Chinese regulators frown on monopolies and unfair competition, Ant and Alibaba have split their operations apart and independently sought new business, Reuters reported last year.

Ant said on Saturday that management will no longer serve on the Alibaba Partnership, a body that can nominate the majority of the e-commerce giant’s board, confirming a change that began in the middle of last year.

Reuters