BEIJING (dpa-AFX) - In a significant development, China has imposed fines exceeding $1 billion on tech giants Ant Group Co. and Tencent Holdings Ltd., signaling the end of a regulatory crackdown that had caused massive market value losses and derailed Ant's planned IPO. The People's Bank of China announced that Ant has been fined 7.12 billion yuan or $984 million after a two-year investigation into the fintech firm founded by billionaire Jack Ma. Tencent, on the other hand, received a fine of 2.99 billion yuan. The fines suggest a resolution to the ongoing scrutiny and pave the way for Ant to revive growth and reconsider its IPO plans.
Investors reacted positively to the news, leading to a more than 6% surge in shares of Ant's affiliate, Alibaba Group Holding Ltd. The fines are seen as drawing a line under the crackdown that impacted Ant's IPO and affected several powerful private companies operating in sectors like online education and gaming. It is anticipated that Ant can now move forward, regain momentum, and eventually revisit its IPO plans.
Vey-Sern Ling, Managing Director at Union Bancaire Privee, remarked that the market response was favorable because the fines indicate that the scrutiny is likely to end, and the amount, although significant, is manageable for a company of Ant's size. The fine is lower than Ant's profit of 9.6 billion yuan in the December quarter.
The People's Bank of China stated that the fines were imposed on Ant Group and its subsidiaries due to violations of laws and regulations in areas including financial consumer protection, payment and settlement business, and anti-money laundering obligations. Ant confirmed that it has completed the necessary rectifications as required by Chinese financial regulators.
This development is viewed as a strong signal of a potential relaxation of restrictions on Ant, which had become one of the high-profile casualties of President Xi Jinping's regulatory clampdown on China's tech giants. The shifting stance of the Communist Party toward the private sector has been closely monitored in global markets, with some considering China's internet sector uninvestable.
Analysts at Jefferies, including Thomas Chong, noted that the decision addresses market concerns regarding fintech and the broader internet sector. They added that it removes the overhang on Alibaba's shares.
While Ant's profitability has declined since its IPO plans were halted, its affiliate Alibaba is undergoing a restructuring process, dividing into six main businesses. Alibaba's shares have experienced a decline from their 2023 highs, losing over $600 billion in value since the Ant episode began.
In addition to Ant and Tencent, fines were also levied on PICC Property & Casualty Co., Postal Savings Bank of China Co., and Ping An Bank Co. as a result of issues discovered during previous law enforcement inspections. The reason for Tencent's fine remains unclear. Executives at Tencent have repeatedly emphasized their financial businesses' compliance with the law and ongoing dialogue with Beijing.
Tencent issued a statement stating that it does not anticipate any adverse impact from the fine and expects China to focus on 'normalized regulation' in the future.
Ant co-founder Jack Ma returned to China in March after an extended period of overseas travel. Ma's return was reportedly orchestrated by the government to demonstrate support for private entrepreneurs. Subsequently, the chief of Hangzhou city praised Ant for adhering to the party's leadership and urged local government departments to address the company's concerns.
Ant previously stated that it currently has no plans for an IPO and is concentrating on its core business. However, Chairman Eric Jing had mentioned in 2021 that the company would eventually go public.
The abrupt halt of Ant's IPO over two years ago sent shockwaves through global capital markets. Since then, the company has faced additional regulatory requirements, such as consolidating its financial units into a holding company and opening its payments app to competitors. China's latest measures are seen as a permanent establishment of higher regulatory barriers for the sector.
The resumption of Ant's IPO may take longer than anticipated as the company must adhere to waiting periods imposed by different stock exchanges. Ant's valuation will also be affected, as the regulatory actions have significantly diminished its worth. Ant might consider spinning out certain businesses, including blockchain technology and its database operation, as part of its future plans.
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