Ant Financial raises record $4.5b

Ant Financial, the online payments affiliate of Alibaba, said on Tuesday that it had raised a record $4.5 billion from private investors, valuing the company at almost $60 billion and moving it a step closer to launching a hotly anticipated initial public offering.

Proceeds from what it said is the largest-ever private fundraising by an Internet company globally will be used to extend Ant Financial's reach into rural Chinese areas and to expand Chinese e-commercial giant Alibaba’s footprint in the thriving mobile e-commerce market of Southeast Asia.

While other so-called unicorns -- private technology startups worth $1 billion or more -- globally have seen their valuations come under increased scrutiny in recent months in the wake of disappointing flotations, the company controlled by former English teacher Jack Ma so far seems unaffected. Ant Financial, which operates China's biggest online payment platform Alipay, is now worth about a third more than it was last year after its first round of funding, when it was valued at $45 billion.

The valuation places Ant Financial among the most valuable privately owned internet companies, alongside China's smartphone maker Xiaomi and US taxi-hailing app Uber, if somewhat below the near-$200 billion market cap of New York-listed Alibaba. Xiaomi and Uber are valued at $45 billion to $50 billion based on their most recent funding rounds last year.

According to data provider Dealogic, there were only 30 technology IPOs in the US last year -- the smallest number since 2009 and about half the total of the previous year. Partly behind the waning investor interest in financial technology, or fintech, companies is a series of disappointing IPOs, including that of US-listed peer-to-peer lender LendingClub, whose share price fell by 70% after its 2014 listing.

But the de-rating of some US-listed fintech companies does not seem to have crossed over fully to infect its Chinese counterparts, in part thanks to Premier Li Keqiang's policy of "internet plus", a strategy to integrate the mobile internet, cloud computing, and big data with modern manufacturing to promote the country's service sector.

“The capital raised in Series B will allow us to invest in the infrastructure, such as cloud computing and risk control, that will underpin out long-term growth in rural and international markets,” Eric Jing, president of Ant Financial, said in a statement.

The company's second round of private equity funding is the largest investment in a technology company to date, surpassing the $3.3 billion that Meituan-Dianping, China’s largest group deals site, raised in January.

Sovereign wealth fund China Investment Corp and a unit of China Construction Bank participated in Ant Financial's latest capital raise, along with existing investors state-owned China Life and China Post Group, whose banking arm Postal Savings Bank of China is planning to raise as much as $10 billion through a Hong Kong float.

Ma has previously said that Ant Financial has plans for an IPO in China but has so far declined to give a timeline.

Banking sources have previously told FinanceAsia that the company may yet decide to list both in Shanghai and Hong Kong, depending on market conditions and investor feedback.

CICC, Goldman Sachs, and JP Morgan advised Ant Financial on its latest funding round.

Disruptive innovation

Analysts at Credit Suisse estimate the fair value of Alipay at about $47 billion, making it Ant Financial's most valuable asset. Alipay had a near-60% market share of China's online payment industry last year, followed by Tencent with 20%.

The Swiss bank expects the country's total online payment market to reach Rmb52.4 trillion ($8 trillion) in 2018, including Rmb23.5 trillion from PC online payments and Rmb29 trillion from mobile phones. The online payment market was about Rmb22 trillion last year.

"Ant Financial is clearly sounding the beginning of the Ice Age for the banking dinosaurs," Keith Pogson, a partner at accounting firm EY, said, anticipating the decline of China's traditional banking industry due to the disruptive effects of fintech.

He said the rapid rise of Ant Financial suggested it had worked out how to make money from the big data that Alibaba gathers from its various online platforms.

Ant Financial has more than 450 million active users in 2015, of which 140 million are rural dwellers.

In addition to China, Alibaba and Ant Financial have collectively invested $680 million in Indian mobile wallet provider Paytm, hoping to replicate the success of Alipay in India's emerging and potentially vast e-commercial market.

Ant Financial, spun off from Alibaba in 2011, runs Alipay, the PayPal-like online payments company that has more than 400 million active users. It also has 260 million active users in China’s largest online money market fund, Yuebao, and food-ordering app Kuobei, which means word-of-mouth reputation in Chinese.