In what’s shaping up as a trend for the year ahead, Tencent (00700.HK) and Alibaba are clashing once again in a newly announced South Korean Internet bank initiative in which both of China’s top Internet companies have an interest.
One can argue that we may be overstating this case by terming it as a clash, given that the stakes held by Alibaba-affiliated Ant Financial and Tencent in two newly formed Korean Internet banks are probably quite small, probably at 5 percent or less.
However, the reality is that the two Internet titans are increasingly clashing in a growing number of endeavors, as each invests in a wide array of areas to expand beyond their core businesses both inside and out of China.
Those investments have put the pair in awkward situations in two of China’s largest Internet M&A deals this year, one involving the formation of hired car services giant Didi Kuaidi, and the other in a newer deal that has Meituan and Dianping merging to form a new leader in the group-buying space.
By comparison, the latest development is relatively modest and probably won’t result in any major conflicts between Alibaba and Tencent for the time being.
But it does provide yet another example of the growing competition between this pair, which are two of China’s largest companies with market values of about US$200 billion. Each company also has billions of dollars in cash and access to billions more in credit, and is eager to put some of that money to work.
The latest clash between these cash-rich titans comes in South Korea, where the local financial regulator has just awarded its first online banking licenses to two groups, one that includes Alibaba and the other Tencent.
The actual license winners were groups anchored by Korean instant messaging leader Kakao Corp and telecoms giant KT Corp, who were among three applicants for a first-ever round of Internet bank license awards handed out by Seoul.
Tencent was part of the KT Corp-led consortium, while Alibaba was part of the Kaokao group through its Alipay electronic payments service that is part of its Ant Financial unit.
There’s no word as to how much either company will hold in its respective new Internet bank, though I do expect the investments are relatively small, probably involving less than US$100 million for stakes of around 5 percent.
Alibaba and Tencent are already banking rivals in their home China market, where each was also among the first private recipients of licenses to operate Internet banks in a pilot program from Beijing.
That initiative has been slow to gain traction due to many restrictions under the program. Reports, meanwhile, suggested this week that Tencent’s WeBank has lost many of its original top managers as it approaches the one-year anniversary of its launch.
The latest clash in Korea comes after the other two much larger deals that I’ve previously mentioned that forced Alibaba and Tencent into uneasy partnerships.
The first of those came at the start of this year, when Alibaba-backed Kuaidi and Tencent-backed Didi announced their merger to create a new industry leader, Didi Kuaidi, with a market value of up to US$15 billion. That deal was driven by stiff competition by well-funded US giant Uber, which forced the Chinese companies into a costly spending war for market share.
More recently, group buying leaders Meituan and Dianping announced plans for merger, again under fierce competition from online search leader Baidu’s Nuomi group buying site. Meituan is backed by Alibaba, while Dianping has links with Tencent following a major stake sale last year.
In the case of Didi Kuaidi, it’s still unclear who will control the company over the longer term, or if Alibaba and Tencent will both remain major stakeholders. But in the Meituan-Dianping case, Tencent is already moving aggressively to unseat Alibaba for control of the new company.
As a result, reports last month indicated that Alibaba is looking to dump its Meituan stake and look for other acquisitions to build up its own related businesses.
At the end of the day, the world is certainly big enough for two big Internet companies like Alibaba and Tencent. But the pair could find the environment increasingly crowded in the China market, which could result in a growing number of clashes in the year ahead.
Bottom line: Alibaba and Tencent are likely to find themselves in a growing number of clashes in the year ahead due to consolidation involving their investments at home and a limited number of opportunities abroad.
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