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Despite Crackdown, Jack Ma’s Alibaba Stock Price Soars

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Alibaba Group and Tencent experienced a surge in their shares in Hong Kong on Monday as China’s regulatory crackdown on the technology sector seemed to reach a turning point with the $984 million fine imposed on Ant Group, the company founded by Jack Ma.

The penalty prompted Ant to announce a share buyback, valuing the fintech company at a 75% discount to its previously anticipated IPO valuation. Nonetheless, the move is seen as providing certainty and liquidity to investors in the wake of the regulatory uncertainty.

After the suspension of Ant’s initial public offering (IPO) in late 2020, Beijing embarked on a broad clampdown on various industries, including technology and education, aiming to rein in perceived excesses and malpractices resulting from the sector’s rapid growth. The regulatory scrutiny created an uncertain environment for both long-established firms and startups, leading to significant declines in share prices. Notable companies affected included Alibaba, Tencent, and Meituan, encompassing the online retail, gaming, and food delivery sectors, respectively.

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ParallelFacts Business learned that in addition to Ant, Chinese authorities also disclosed that Tencent’s online payment platform, Tenpay, had been fined nearly 3 billion yuan ($414.88 million) for violating regulations pertaining to customer data management.

The People’s Bank of China (PBOC) stated that the primary issues related to the financial businesses of platform companies had been addressed, signaling a shift from focusing on specific entities to industry-wide regulation.

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Market analysts from Huatai Research hailed the announcement as a critical milestone for establishing a predictable and transparent regulatory environment for China’s internet companies.

Alibaba’s shares rose approximately 3% in Hong Kong, while Tencent observed an increase of nearly 1% on Monday, largely attributed to expectations of easing regulatory pressure from the mainland government, according to Dickie Wong, Executive Director at Kingston Securities.

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Alibaba, which spun off Ant 11 years ago and retains a 33% stake, is evaluating whether to participate in the share buyback, which would transfer shares to an employee incentive scheme.

Ant proposed repurchasing up to 7.6% of its equity interest from all shareholders, indicating a group valuation of around $78.5 billion. This valuation contrasts with the $315 billion figure in 2020, when Ant’s IPO, poised to become the world’s largest, was abruptly halted by Chinese regulators.

The People’s Bank of China cited various violations committed by Ant and its subsidiaries, including breaches in corporate governance, financial consumer protection, payment and settlement operations, and anti-money laundering obligations. The imposed fine is one of the largest ever for a Chinese internet company.

The outcome reached by Alibaba It is anticipated that Ant’s penalty will make it easier for the firm to acquire a license to operate as a financial holding company, will reignite growth, and will eventually make it possible for the company to resume its plans to list on a stock exchange. However, market watchers are skeptical about whether or not Ant will launch an initial public offering in the near future.

Alibaba Ant’s buyback rationale revolved around giving liquidity to existing investors and attracting and maintaining brilliant employees through employee incentives, according to Oshadhi Kumarasiri, an analyst at LightStream Research who posts on Smartkarma. Kumarasiri said that Ant could have reached these goals through an initial public offering, which led to suspicion that the IPO may be effectively put on hold at this time.