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Alibaba’s financial arm eyes more capital to build an empire in China

July 7, 2015 03:25 PM
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(Bloomberg)—E-commerce giant Alibaba Group Holding Ltd.’s financial affiliate has designs on becoming an all-round Chinese services juggernaut, and is willing to let investors join in as it takes on entrenched state-run institutions.

Zhejiang Ant Small & Micro Financial Services Group Co., which sold 12.4% of its shares to investors in its last financing round, remains open to raising more capital as it ventures into areas from insurance to credit ratings, newly appointed president Eric Jing said in an interview.

The company known as Ant Financial, which dominates e-commerce payments in China and operates Alipay, was said to be valued at over $40 billion in its latest round—making it one of the world’s largest private tech companies. It manages the nation’s biggest money market fund Yu’E Bao and is targeting smaller borrowers to tap a market overlooked by traditional banks.

“We want to become the strongest growth engine for global Internet finance,” Jing said at his offices in the eastern Chinese city of Hangzhou. “We want to help more smaller businesses, consumers and partners and spark innovation,” he said in his first interview with foreign media since being named to the post in June.

The company is angling for an initial public offering in the longer term though it has no timeframe in mind, and won’t rule out raising more funds before then, Jing said.

Pension fund

In a round completed last month, Ant Financial sold about a 12.4% stake to external investors including the National Social Security Fund, the executive confirmed. The pension fund bought about 5%, Wang Zhongmin, a vice chairman of the fund, said in June.

David Yu, the co-founder of Alibaba Chairman Jack Ma’s Yunfeng Capital fund, also bought into that round via three separate entities, Jing said.

Other investors include China Development Bank Capital Co., New China Life Insurance Co., PICC Capital Investment Management Co., China Pacific Life Insurance Group Co., according to a filing posted on the Zhejiang province’s company registration information disclosure system.

Investors may be drawn by Ant Financial’s exponential growth. Since it began life as Alipay in 2004, the company has become the country’s largest online provider of financial services, helped by its role as the preferred payment method across Alibaba platforms.

It has since expanded into adjacent industries such as insurance and online credit.

Alipay now has 400 million active users and more than 17 million overseas registered users, Jing disclosed for the first time. The company is plugging the service for hospitals, fast-food chains and other unconventional settings.

Courting controversy

Underpinning Ant Financial’s efforts is Sesame Credit, which is trying to build a national ratings database to gauge the risk of lending to smaller operators. Sesame has signed up 36 million members after just six months, Jing said.

One of the more aggressive of China’s new breed of online finance companies, Ant Financial’s maneuvers have courted controversy in the past.

Ma spun off Alipay into a new company he controlled in 2011, citing the risk of foreign ownership of domestic financial firms. Major shareholder Yahoo Inc. protested and said it was caught unaware.

Like Alibaba, Ant Financial is said to favor a partnership structure that allows management to nominate a majority of board directors before its IPO.

Now, its incursions into banking, such as through just-started MYbank, have irked the country’s lenders.

Ant Financial says it’s just trying to make life easier for smaller businesses and people in a system that typically favored government corporations. It wants to service 10 million smaller enterprises in five years.

Other products

More than 200 million Alipay users already manage their wealth via financial products like Yu’E Bao, which pooled about $115 billion of assets as of the end of March.

The company also introduced “Le Ye Bao”, which allows businesses to buy insurance cover for staff at a relatively cheaper rate, said Jing, who was formerly Alipay’s chief financial officer.

Beyond products, Ant is experimenting with personal credit ratings gleaned off Alipay in novel ways, by letting those with good scores avoid the need for guarantee payments when booking hotels, or apply for travel visas more easily for instance.

The company is breaking the mold in other ways. Jing said Ant Financial is willing to sell shares at a discount to those who give back to the community.

“We gave the National Social Security Fund certain discounts, because it would be a good way to share the benefits with people across the nation,” Jing said. “Ant Financial is actually worth much more.”

 

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