Spring, Alibaba Finance Arm Move Towards IPOs
I don’t usually write about IPOs in China’s domestic A-share market, mostly because most such offerings are for stodgy state-run firms with low growth potential and whose shares aren’t available to most foreigners. But the market is changing as the regulator slowly warms up to more interesting private firms, which is reflected in an upcoming listing plan by entrepreneurial budget carrier Spring Airlines. At the same time, separate reports are shining a spotlight on another potentially exciting domestic IPO that would still be a year or two in the future, with word that e-commerce giant Alibaba (NYSE: BABA) has set up Ant Financial, a separate company to officially own its financial service assets.
Many of China’s most exciting and high-growth companies are now listed overseas, mostly in Hong Kong and New York. That bias is partly due to the fact that many such firms were originally backed by offshore venture capital, and such investors are quite familiar and adept with making listings in those 2 markets. At the same time, China’s securities regulator for years has had a bias against foreign-invested private companies, and the vast majority of firms now traded on the nation’s 2 main stock exchanges in Shanghai and Shenzhen are either state-run or have state-run backgrounds.
That bias is slowly changing, and now Spring’s pending IPO in Shanghai could offer one of the more interesting and entrepreneurial options for mainland-based investors in quite some time. Spring is China’s first and currently its only budget airlines, and has managed to become quite successful despite numerous advantages enjoyed by its larger state-owned rivals. I personally don’t like to fly on Spring due to the nonstop ads and small seating spaces on its planes, but plenty of my more budget-conscious friends frequently use the airlines and are relatively happy with it.
Spring first discussed its IPO plans back in April, when China’s securities regulator was lifting a year-long ban on new offerings, saying it hoped to raise up to 2 billion yuan ($325 million), following a series of failed listing plans dating back to 2009. (previous post) Now media are reporting that the airline’s initial application has received regulatory approval and the company hopes to make the listing by year-end. (Chinese article) There’s no additional detail, though presumably the fund-raising amount would be similar to the one mentioned in April. I would expect such an offering to finally succeed this time, and would even consider buying shares myself due to the company’s strong growth potential.
Next let’s look at the news for Alibaba’s finance arm, which has a bit of history that needs explaining first. The central asset in the newly-formed Ant Financial is Alibaba’s Alipay electronic payments arm, which isn’t part of the recently New York listed Alibaba. That’s because foreigners aren’t allowed to own stakes in Chinese electronic payment companies, at least not yet, and many other financial services are also still closed to foreign ownership.
Thus Alibaba appears to be loading all of its financial services units, including Alipay and its newer Yu’ebao savings product, into Ant Financial, which held a formal launch even this week, according to new reports. (Chinese article) Ant’s name was previously mentioned in reports when Alibaba became one of China’s first private companies to get a traditional banking license last month (previous post), and I suspect Alibaba’s stake in that bank will probably also become part of Ant Financial.
Alipay should already be quite profitable and so should Yu’ebao, meaning the new Ant Financial could easily make an IPO in the next year or two that would be quite welcome by investors. Such an offering could come on the domestic A-share market due to the previously mentioned ownership restrictions, finally giving local Chinese a chance to invest in an exciting private financial services play with big growth potential.
Bottom line: A Shanghai IPO by Spring Airlines is likely to get a strong reception as it moves closer to reality, while Alibaba could also launch a domestic IPO for its new Ant Financial services unit in the next 1-2 years.
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