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Critical Rejig In Ant Group Will See Its Founder Jack Ma Giving Up Control Of Company

Critical Rejig In Ant Group Will See Its Founder Jack Ma Giving Up Control Of Company
Ant Group founder Jack Ma will relinquish control of the Chinese fintech behemoth in an overhaul aimed at putting an end to a regulatory crackdown that began shortly after Ant Group's mammoth stock market debut was thwarted two years ago.
Ant's $37 billion IPO, which would have been the world's largest, was canceled at the last minute in November 2020, forcing the financial technology firm to restructure and raising speculation that the Chinese billionaire would have to cede control.
While some analysts believe that relinquishing control could pave the way for the company's IPO to be revived, the changes announced by the group on Saturday are likely to cause a further delay due to listing regulations.
Companies must wait three years after a change in control before listing on China's domestic A-share market. On Shanghai's Nasdaq-style STAR market, the wait is two years, and in Hong Kong, it is one year.
Ma, a former English teacher, previously held more than 50% of Ant voting rights, but the changes will reduce his share to 6.2%, according to Reuters calculations.
According to Ant's IPO prospectus filed with the exchanges in 2020, Ma only owns a 10% stake in Ant, an affiliate of e-commerce giant Alibaba Group Holding Ltd, but has exercised control over the company through related entities.
According to the prospectus, Hangzhou Yunbo, Ma's investment vehicle, controlled two other entities that owned a combined 50.5% stake in Ant.
Ma's handover comes as Ant nears the end of its two-year regulatory-driven restructuring, with Chinese authorities poised to levy a fine of more than $1 billion on the company, according to Reuters in November.
The expected penalty is part of Beijing's sweeping and unprecedented crackdown on the country's technology titans over the last two years, which has reduced their values by hundreds of billions of dollars and reduced revenues and profits.
However, Chinese authorities have recently softened their stance on the tech crackdown in order to support a $17 trillion economy that has been severely harmed by the COVID-19 pandemic.
"With the Chinese economy in a very febrile state, the government is looking to signal its commitment to growth, and the tech, private sectors are key to that as we know," said Duncan Clark, chairman of investment advisory firm BDA China.
"At least Ant investors can (now) have some timetable for an exit after a long period of uncertainty," said Clark, who is also an author of a book on Alibaba and Ma.
Ant runs the world's most popular mobile payment app, Alipay, which has over 1 billion users.
Ant, whose businesses include consumer lending and insurance product distribution, announced that Ma and nine of its other major shareholders had agreed to no longer vote in concert and would instead vote independently.
It also stated that the adjustments will have no effect on the shareholders' economic interests in Ant.
Ant also announced that it would add a fifth independent director to its board, making independent directors the majority of the company's board. It currently has eight directors on its board.
"As a result, there will no longer be a situation where a direct or indirect shareholder will have sole or joint control over Ant Group," it said in its statement.
According to Reuters, Ant was looking into ways for Ma, one of China's most successful and influential businessmen, to sell his stake in Ant and relinquish control in April 2021.
According to the Wall Street Journal, which cited unnamed sources, Ma could cede control by transferring some of his voting power to Ant officials, including Chief Executive Officer Eric Jing, in July last year.
Ant's Hong Kong and Shanghai market listings were halted just days after Ma publicly chastised regulators in a speech in October 2020. Since then, his vast empire has been scrutinized by regulators and is being restructured.
Ma, who was once outspoken, has largely remained out of the public eye since the regulatory crackdown that has reined in the country's technology behemoths and replaced a laissez-faire approach that has driven breakneck growth.
"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," said Andrew Collier, managing director of Orient Capital Research.
"This trend will continue the erosion of the most productive parts of the Chinese economy."
As Chinese regulators crack down on monopolies and unfair competition, Ant and Alibaba have been untangling their operations and seeking new business independently, according to Reuters last year.
Ant announced on Saturday that its management would no longer serve in the Alibaba Partnership, a body that can nominate the majority of the e-commerce giant's board of directors, confirming a change that began in the middle of last year.

Christopher J. Mitchell

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