Update (0809ET):
Ant Group has been slapped with a 7.12 billion yuan fine from the People's Bank of China.
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Shares of Alibaba Group were higher in the premarket US session after Reuters reported that Chinese authorities were set to announce a fine of at least 8 billion yuan ($1.1 billion) on the fintech arm of the e-commerce giant "as soon as Friday," which could signal an end to Beijing's multi-year crackdown on tech companies.
Citing people with knowledge of the matter, Reuters said that they expect the People's Bank of China to announce the largest-ever fine for an internet company in the country on Ant Group of around $1.1 billion. That will allow the fintech company to obtain a financial holding company license, increase growth, and revive plans for an initial public offering.
Alibaba shares in Hong Kong jumped 3.44% in Asia. In New York, shares of the e-commerce giant were up nearly 3%. Shares have remained range bound between $120 and $60 for more than 1.5 years.
"The market likes it because scrutiny looks likely to be over and the fine, though big in absolute terms, is very manageable for such a big company," Vey-Sern Ling, managing director at Union Bancaire Privee, told Bloomberg.
The 2020 probe into Ant marked the start of Beijing's crackdown on technology companies, forcing the fintech company to abandon its 2020 IPO. The move by authorities also wiped hundreds of billions of dollars from China's tech sector. An Ant fine would likely conclude the crack in tech (for now).
Ant has been restructured in the last few years, transforming itself into a financial holding company that would subject it to banking rules, such as capital requirements.
Meanwhile, Alibaba is splitting into six main businesses, from cloud services to meal delivery and logistics. Also, Alibaba's Jack Ma recently replenished control of Ant.
Investors have been waiting for a signal to mark the end of China's crackdown on its internet sector. Here's what Wall Street analysts had to say about this morning's news (list courtesy of Bloomberg):
Union Bancaire Privee (Vey-Sern Ling)
- "Market likes it because scrutiny looks likely to be over and the fine, though big in absolute terms, is very manageable for such a big company"
- "However, Ant is a very different company from before with all the restrictions in place and its valuation should be much smaller"
UOB Kay Hian (Steven Leung)
- The pulling of Ant's IPO kicked off the revamp on China tech; the fine, which is less than expected, may signal the end of sector restructuring
- "This may also speed up the IPOs of Alibaba's 6 business units and will definitely help the equity market's sentiment"
Fortune Hill Asset Management (Chen da)
- The fine, when finalized, combined with recent guidelines from the Zhejiang province to support the platform economy, send a strong signal that the nation is offering support to tech giants
- The news is coming as some relief for the broader market "after the concerns this week over bank risks"
