Alibaba's Ant Financial seeks more pre-IPO funding

The size of Ant's latest fund raising and the speed in which it is returning to market suggests an acquisition may be in the offing, say sources.

Ant Financial, Alibaba’s financial affiliate, is seeking to raise capital for the second time in six months ahead of its planned initial public offering, the company said on Monday.

Hangzhou-based spokeswoman Miranda Shek declined to specify the renminbi amount being targeted or to provide an updated company valuation but said the second round of pre-IPO funding would see shares issued to both existing and new investors.

Bloomberg earlier in the day reported that Ant Financial wanted to raise another Rmb10 billion ($1.5 billion) at least.

Ant Financial, formerly known as Zhejiang Ant Small & Micro Financial, completed an initial round of fundraising in June. That raised an undisclosed amount via a private placement but valued the company at about $45 billion, sources familiar with the matter told FinanceAsia at the time. 

The implied valuation places the firm among the most valuable privately owned technology companies worldwide, alongside US taxi hailing app Uber and Chinese smartphone maker Xiaomi. It is also about 11 times bigger than US peer-to-peer lending firm Lending Club’s $4.2 billion market valuation.

In June Ant Financial successfully attracted eight external investors including China’s National Social Security Fund, which bought a 5% stake, and China Development Bank Capital. The others comprise four of China’s largest insurance companies, including China Life Insurance and PICC, and private equity firms Primavera Capital Group and GP Capital, according to the firm's updated registration details with the Chinese industrial and commercial bureau.

Ant Financial, spun off from Alibaba in 2011, runs Alipay, the PayPal-like online payments service. It also runs Yu’e Bao, China’s largest money market fund, and MYbank, one of the country’s first internet banks.

Alipay processed Rmb91 billion worth of transactions on Singles Day on November 11, the world’s biggest single-day shopping event.

Two sources familiar with the matter told FinanceAsia that the company will seek to improve its valuation via the second round of fundraising. “They’ve achieved good results since the first round. It’s natural to look for a higher valuation,” said one of the sources.

Getting tougher

Ant Financial's swift return to the market nonetheless surprised some investment bankers. They added the company could be trying to get ahead of the herd of fintech unicorns looking to tap investors even as the investment climate for fintech start-ups cools.

“I was surprised by how fast they've returned to market,” said one Hong Kong-based investment banker. “The fundraising climate for fintech is definitely getting tougher, maybe they wanted to get ahead of that.”

Chinese stocks plunged on Monday as the new year got underway, triggering a new “circuit breaker” for the first time as weak factory activity data and falls in the renminbi prompted heavy selling.

“The drop in Chinese stock markets today was worrying. I need investor confidence to improve, so the pipeline of deals will go though and perform well,” the Hong Kong investment banker said.

Alibaba’s billionaire chairman Jack Ma, who is also Ant Financial’s biggest shareholder, said in February 2015 that Alibaba intended to list the affiliate. Shek told FinanceAsia that no formal timeline has yet been specified.

A second Hong Kong-based investment banker said the latest round of fundraising could mask plans for an acquisition as the company is reportedly seeking at least $1.5 billion. At its current growth rate and projected capital needs, Ant Financial would not necessarily need another round of fundraising so soon after the first. 

Alibaba has moved quickly via acquisitions to stay ahead of the online-to-offline trend. So Ant Financial could be lining up the funds to follow this path also by grabbing more of an offline presence, the second banker said.

On the other hand, with Alibaba’s share price down about 22% in 2015 the time when Ant Financial could call on its parent for liberal financing may have passed.

CICC and Goldman Sachs are working on the Series B funding, according to a third source with knowledge of the matter. 

Additional reporting by Ray Chan 

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