Alibaba Stock Plummets As Chinese Regulators Pressure Jack Ma To Cede Control Of Ant Financial

Zinger Key Points
  • Regulators are pressuring Chinese billionaire Jack Ma to relinquish control of Ant Financial.
  • The news may further delay the long-awaited IPO of the Alibaba affiliate.

Alibaba Group Holding Ltd - ADR BABA finished a news-packed week on a low note Friday and was down about 9.5% following reports that billionaire Jack Ma is giving up control of Ant Financial.

What Happened? Earlier this week, Alibaba shares briefly rallied on news the company plans to duel list its shares in Hong Kong by the end of 2022.

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The stock tanked Friday following a report by the Wall Street Journal that regulators in China have pushed Ma to cede control of Alibaba affiliate Ant Financial.

Later Friday, the Securities and Exchange Commission said Alibaba is one on a list of Chinese companies that could be delisted, according to Reuters, adding to the stock's woes. 

Why It's Important: The ouster of Ma is just the latest in more than a year of relentless crackdowns on Alibaba and Ma by Chinese authorities, seemingly to reduce Ma's influence and power. The crackdown began in late 2020 when regulators halted Ant Financial's $34-billion initial public offering after Ma made public commentary critical of regulatory restrictions in China.

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Ma doesn't hold an executive role at Ant or sit on the company's board, but he does hold a 50.52% ownership stake. Alibaba holds a 32.65% ownership stake in Ant. Ant is in the process of restructuring its business into a financial holding company in the hopes the Chinese government will eventually approve its IPO application.

To make matters worse for Alibaba and other Chinese stocks Friday, the Chinese government has enacted yet another lockdown of a Wuhan district this week following four asymptomatic cases of COVID-19. The Jiangxia district is home to nearly 1 million people. 

On Friday, DataTrek Research co-founder Nicholas Colas said U.S. investors considering investing in any Chinese stock should examine the Alibaba case closely.

"The saga of Ant Financial’s efforts to go public is a good case study in how differently Chinese capital markets operate versus the rest of the world," Colas said.

He said an Ant Financial IPO may now be years away if it ever happens at all.

"The holding company restructuring puts Ant in a regulatory holding pattern of 1-3 years depending on whether it lists in Hong Kong or Shanghai, respectively," he said.

Benzinga's Take: It's very difficult to make a case for investing in Alibaba or any other large Chinese tech companies when the Chinese government itself has seemingly become their biggest enemy. The Chinese Communist Party appears to have prioritized political power over economic growth and innovation, a strategy that makes Chinese stocks unappealing to international investors.

Alibaba co-founder Jack Ma. Benzinga file photo by Dustin Blitchok.

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Posted In: Analyst ColorAsiaGovernmentRegulationsTop StoriesMarketsAnalyst RatingsDataTrek ResearchNicholas Colas