Hong Kong, July 10 (Reuters) – Shares of Alibaba Group (9988. HK) and Tencent (0700. HK) surged in Hong Kong on Monday, following China’s $984 million fine against Ant Group, the company founded by Jack Ma. The fine is seen as a signal that the regulatory crackdown on the country’s technology sector may be coming to an end.
In response to the penalty, Ant Group announced a share buyback program worth up to $6 billion. The buyback values the fintech company at a 75% discount to its previously touted valuation in an abandoned initial public offering (IPO) plan. However, it is expected to provide liquidity and certainty to investors.
The shelving of Ant’s IPO in late 2020 marked the beginning of a broad clampdown by Beijing on various industries, including technology and education. Regulators aimed to assert their authority over what they deemed to be excessive practices that had emerged from years of unchecked growth.
This scrutiny created a new and uncertain environment for both long-established companies and startups, causing billions of dollars in market value to be wiped out. Companies such as Alibaba, Tencent, and Meituan (3690. HK) were among those affected.
Alibaba’s shares listed in Hong Kong closed up 3.2%, outperforming the 0.6% rise of the benchmark Hang Seng index (.HSI). Tencent shares also closed higher, up 0.7%.
In addition to Ant, Chinese authorities also announced a fine of nearly 3 billion yuan ($414.88 million) against Tenpay, Tencent’s online payment platform, for violations related to customer data management.
The People’s Bank of China (PBOC) stated on Friday that most of the significant issues with platform companies’ financial businesses had been rectified. Regulators would now shift their focus from individual companies to the overall regulation of the industry.
In a note to clients, analysts at Huatai Research described this announcement as a significant milestone in establishing a regular, clear, and visible regulatory environment for China’s internet companies.
Alibaba, which spun off Ant 12 years ago and holds a 33% stake, stated on Sunday that it was considering participating in the buyback, which would transfer shares to an employee incentive scheme.
Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, the major shareholders of Ant Group, collectively holding more than 50% of its shares on behalf of the company’s executives and employees, will not take part in the buyback, according to Ant Group.
Ant Group proposed repurchasing up to 7.6% of its equity interest at a price that values the group at approximately $78.5 billion. This is significantly lower than the $315 billion valuation it had in 2020 when it was preparing for what would have been the world’s largest IPO before being halted by Chinese regulators.
The PBOC stated on Friday that Ant and its subsidiaries had violated laws and regulations in areas such as corporate governance, financial consumer protection, payment and settlement business, and anti-money laundering obligations. The fine imposed was one of the largest ever for a Chinese internet company.
The finalization of Ant’s penalty is seen as a step towards securing a financial holding company license, which could enable the company to increase its growth rate and eventually revive its plans for a stock market listing. However, analysts are skeptical about whether Ant will proceed with an IPO in the near future.
Oshadhi Kumarasiri, an analyst at LightStream Research who publishes Smartkarma, commented that “Ant could have achieved both these objectives through an IPO…This means IPO is essentially put on hold.”
(Note: This story has been corrected to state that Alibaba spun off Ant 12 years ago, not 11).
Reporting by Scott Murdoch in Sydney and Donny Kwok in Hong Kong; Editing by Anne Marie Roantree and Jamie Freed