Alibaba And Tencent See A Significant Increase In Share Value Amid Ant Group’s $984M Fine
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Two of the largest tech companies in China, Alibaba Group and Tencent, recorded a significant increase in share value on Monday. The gains come after a $984 million fine imposed by China against Ant Group was seen to be signaling an end to the regulatory crackdown in the Chinese technology industry.
Alibaba and Tencent investors optimistic about End to tech regulatory crackdown
Following this $984 million fine, the founder of Alibaba, Jack Ma, announced a share buyback program of up to $6 billion, representing a 75% discount on the company’s valuation in the initial public offering (IPO) that failed to materialize.
The failed IPO plans by Ant Group towards the end of 2020 triggered a widespread crackdown by Beijing on the tech and education industries. Regulators are also looking to assert their authority over what was seen to be excesses and bad practices that were emerging from the years of runaway growth.
The scrutiny had created an uncertain regulatory framework that has wiped billions from the company’s share prices. The move affected tech giants such as Alibaba and Tencent, with the Meituan food delivery group also feeling the effects.
The shares of Alibaba gained by 3.2%, while Tencent shares also gained by 0.7%. The possible recovery of tech companies in China comes as the country’s economy is being challenged by a weakening recovery. The move is meant to alleviate investor concerns while making commitments to support the growth of the private industry.
Ant Group was not the only Chinese tech company facing fines. Chinese authorities also imposed a fine of nearly 3 billion yuan against the Tenpay online payment platform by Tencent.
The People’s Bank of China said that the majority of the issues facing the financial businesses of platform companies had been solved, and regulators would shift their attention to industry regulations as compared to specific companies.
Ant Group sees a significant drop in valuation
On Saturday, Ant Group said that it was proposing the repurchase of up to 7.6% of its equity interest at a price that gives a valuation of around $78.5 billion. The new valuation is a significant drop from the $315 billion valuation that was set in 2020, in what was seen as the world’s largest IPO.
The buyback program will be a chance for Ant investors that participated in three funding rounds between 2015 and 2018 to sell out their stake in the company. The company’s valuation was affected by the charges brought by regulators.
The fine imposed against Ant Group over the alleged violations of corporate governance, financial consumer protection and anti-money laundering obligations mark one of the largest fines that have ever been imposed on a Chinese internet company.
The company has said that the reason behind the buyback program was to boost liquidity for the existing investors, while attracting and retaining the talented individuals using employee incentives. While these objectives could have been achieved through an IPO, the buyback program indicates that the IPO has now been put on hold.
