Ant IPO: Why Attempts to Blacklist the Company Won’t Have a Big Impact

By Mariliana Fotopoulou Thursday, October 15, 2020

The Trump administration is considering adding the Chinese fintech giant, Ant Group, to the trade blacklist. This list prohibits U.S. companies from working with companies or individuals on the list.

Ant Group, in which Alibaba Group holds a 33% stake, is the world’s highest-valued financial technology company. According to experts, this potential move by Washington wouldn’t significantly affect the company.

Delicate Timing

Washington will likely attempt to add the Chinese fintech giant to the US “Entity List.” In order to do business with companies that are on this list, US companies are required to obtain a license.

The move by Washington came in a delicate time as the Ant Group is preparing for its initial public offering (IPO) in Shanghai and Hong Kong. However, experts believe that blacklisting it won’t hugely affect the company’s business, nor its upcoming IPO.

"The trade blacklist is largely symbolic. It won't be effective in stopping Ant from either going public or investing in critical areas (i.e., blockchain)," Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future (CIF) in Toronto, told CNBC.

"But, the blacklist is effective in another respect: making other countries cautious about linking their tech ecosystems to China."

Trump has taken an aggressive stance on Chinese tech firms ahead of the presidential election next month. The President has also been considering blacklisting Chinese social platforms WeChat and TikTok, owned by Tencent and ByteDance, respectively.

Before the Ant Group, the Trump administration had already blacklisted some Chinese tech companies, including Huawei. However, blacklisting Huawei had a much larger impact on its business as it’s heavily dependent on U.S. technology.

After it was added to the Entity List, Huawei was banned from using Google’s Android operating system, which led to a decline in international smartphone shipments.

China-Oriented Business

On the other hand, Ant Group is not as dependent on American tech as these other Chinese companies because the majority of its consumers are in China and its products target the domestic market. Most importantly, only 5% of its revenue is generated overseas.

The company uses the Alipay mobile payments app, which has more than 700 million monthly active users in China. The company also provides other types of services like insurance and wealth management.

The majority of Ant Group’s revenue comes from selling fintech to financial institutions and charging for technology service expenses. Most of this business is conducted in China, and less than 5% of its revenue comes from international customers.

“Operating-wise, Ant Group on the Entity List, I don’t think it’ll make a dent to their business at all,” said Edith Yeung, a general partner at venture capital firm Race Capital.

The upcoming Ant Group’s dual IPO could be one of the largest in history and the company could seize a valuation of as much as $200 billion, according to the estimates. The group hasn’t priced its public offering yet.

Sen. Marco Rubio (R-FL) is actively advocating for Ant Group’s IPO to be postponed.

“It’s outrageous that Wall Street is rewarding the Chinese Communist Party’s blatant crackdown on Hong Kong’s freedom and autonomy by orchestrating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges,” Rubio told Reuters.

“The Administration should take a serious look at the options available to delay Ant Group’s IPO,” he added.

Ant Group said it’s conscious of the geopolitical disputes and views it as a risk for its IPO prospectus submitted to the Hong Kong stock exchange. The group also talked about the export bans and other sanctions on Huawei introduced by the US.

“These restrictions, and similar or more expansive restrictions that may be imposed by the U.S. or other jurisdictions in the future, may materially and adversely affect our ability to acquire or use technologies, systems, devices or components that may be critical to our technology infrastructure, service offerings and business operations; to access U.S. cloud-based systems and other infrastructure; and to operate in the US,” Ant Group said.

Summary

The US government is seeking to blacklist the Chinese fintech giant, Ant Group, but this potential move likely won’t significantly impact the company’s business as only 5% of revenue is generated outside of China.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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