Jack Ma: shocking announcement and giving up control

Jack Ma the billionaire founder of Chinese fintech giant Ant Group, has announced that he will give up control of the company following a regulatory crackdown.

The company stated that after the changes, no individual will have overall control. Ma directly and indirectly controlled more than 50% of Ant Group, but will now only control just over 6% following the changes to the governance structure.

Ant Group runs Alipay, the main online payment system in China, which has replaced cash, checks, and credit cards for many consumers.

The company had been planning a $37 billion stock market flotation, which would have been the world's largest, but the plans were abruptly halted in November 2020 due to "major issues" cited by Chinese authorities regarding the regulation of the firm.

Some analysts believe the move was an attempt by the government to humble a company that had become too powerful and a leader who had become too outspoken.

The Drastic Decision

Jack Ma a former English teacher who also founded e-commerce giant Alibaba, made headlines in October 2020 when he criticized the country's financial sector during a conference. He argued that traditional banks had a "pawn-shop mentality" and praised the merits of the digital banking system, stating that future lending decisions should be based on data rather than collateral.

These comments reportedly led to the cancellation of Ant Group's stock market flotation and Ma's subsequent disappearance from the public eye for three months.

After the collapse of the flotation, which would have made Ma the richest person in China, he avoided the spotlight and his whereabouts were the subject of much speculation. He eventually reappeared, but has remained out of the public eye since then.

The changes to Ant Group's governance structure are part of a two-year restructuring process driven by regulators. The company is also reportedly facing a fine of over $1 billion as part of a wider crackdown on China's tech giants over the past two years.

This crackdown has led to a decrease in the values, revenues, and profits of these companies. However, in recent months, the authorities have taken a softer approach as they attempt to boost the Chinese economy, which has been impacted by the COVID-19 pandemic.

Andrew Collier, Managing Director of Orient Capital Research, commented on the situation, saying, "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. This trend will continue the erosion of the most productive parts of the Chinese economy."

The Consequences

Shares of listed Chinese companies with major stakes in Ant Group rose on Monday after the announcement that Ant founder Jack Ma would be giving up control of the fintech giant following a restructuring. Alibaba's Hong Kong-listed shares jumped 7%, while shares of Longshine Technology Group, Jilin Zhengyuan, Shanghai Golden Bridge Infotech, Orbbec, and Hundsun Technologies also rose. These companies all have indirect stakes in Ant Group ranging from more than 20% to slightly more than 5%.

Ant Group's planned $37 billion IPO, which would have been the world's largest, was abruptly halted in November 2020 due to "major issues" cited by Chinese authorities. This led to speculation that Ma would have to cede control of the company and a forced restructuring.

Some analysts believe that the relinquishing of control could pave the way for Ant Group to revive its IPO, although the changes announced on Saturday are likely to result in a further delay due to listing regulations.

China's domestic A-share market requires a three-year waiting period after a change in control before a company can list, while the wait is two years on Shanghai's Nasdaq-style STAR market and one year in Hong Kong.

Alexander Sirakov, Managing Partner at Aquariusx, a Shanghai-based investment consultancy, said that the announcement allows investors to "assign a risk premium to the new company that Ant was transformed to be." Morgan Stanley also announced in a January 8 research note that it would elevate Alibaba to its "top pick" of stocks in China's internet industry in 2023, citing easing regulation as one of the reasons for the decision.