China would have held the world record for the biggest initial public offering if Ant group had listed in November 2020. At the time, the financial services business planned to raise $37bn, valuing it at about $315bn. Alibaba’s payments affiliate may never get back to that valuation. But it still holds the key to stemming outflows from Chinese stocks.
Conflicting reports on whether an Ant listing will go ahead have triggered wild swings in Alibaba’s US-listed shares in the past two months. China’s regulator denied stories it has started discussions on reviving the transaction.
The volatility brings back memories of 2020, when the cancellation of the Ant listing marked the beginning of a two-year crackdown on the tech sector and sharp sell-off in stocks. Hong Kong listed shares of Alibaba have nearly halved in the past year. At 15 times forward earnings, they trade lower than local peers also targeted by Beijing’s crackdowns, such as Tencent.
Ant’s valuation will now be nowhere near its previously expected total of $315bn in 2020, which implied a multiple of 30 times on a forward earnings basis. Since then, the global tech sell-off has slashed valuations, including that of US peer PayPal, whose share price has also collapsed in the past year, now trading on 18 times earnings.
For Alibaba, a listing in China had been one of the few options left to give its floundering share price a boost. New lockdowns and more Covid outbreaks in China can only hurt the outlook for the ecommerce giant. A listing of Ant would have helped, given it holds a stake in the company of about a third.
When the time comes for a listing, a pricing discount would be needed to attract investors to Ant. The abrupt scrapping of the listing two years ago has changed forever the way investors view the regulatory risks for Chinese stocks. But the symbolic boost the listing would give to Chinese equities would make a lower price bearable.
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