Alibaba Group Holding Ltd. said it will buy 33 percent of Ant Financial, helping to clear the way for an initial public offering of its financial technology affiliate.
The Chinese e-commerce giant will acquire new shares in the electronic payment service provider in exchange for certain intellectual property rights, Bloomberg reports, citing a statement from Alibaba.
While no cash is changing hands, Ant Financial will end royalty payments to Alibaba which were worth more than US$300 million in the last fiscal year, the report said.
Alibaba, meanwhile, posted stronger than expected sales in the third quarter and raised its annual revenue forecast.
Revenue for the three months to December rose to 83.03 billion yuan ($13.19 billion), up from 53.2 billion yuan a year earlier. That exceeded the 79.8 billion yuan average estimate of 28 analysts polled by Thomson Reuters.
The company also raised its revenue growth forecast for the 12 months ending March to 55 to 56 percent, up from a previous estimate of 49 to 53 percent.
Alibaba has not held a stake in Ant Financial, the owner of electronic payment platform Alipay, since founder Jack Ma spun out the business in 2011, Bloomberg said.
Ant Financial has had a series of setbacks recently. Its move to expand into the United States by acquiring MoneyGram International Inc. was shot down by US regulators. Domestically, it is facing growing competition and increased regulatory scrutiny.
Alipay’s share of online payments in China has slumped to 54 percent at the end of September amid the rise of Tencent’s WeChat platform, Bloomberg said, citing data from research firm Analysys International.
Still, Ant Financial almost doubled earnings in fiscal 2017 as it expanded its footprint in wealth management and overseas markets, the report said.
CLSA valued the company at US$74.5 billion in 2016.
“This acquisition of Ant Financial’s stake could be a preparation for its potential IPO,” Bloomberg quoted Pacific Epoch analyst Steven Zhu as saying.
“Alibaba was able to improve revenue growth because performance-based ads were able to generate better revenue on mobile apps and its catered user pages drove more sales.”
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