HONG KONG -- Alibaba Group Holding has purchased one-third of Ant Financial, the operator of leading Chinese online payment system Alipay, but it remains uncertain whether the restructuring clears a path for Ant's long-awaited stock listing.
Alibaba receives the 33% stake in return for ending a profit-sharing agreement that required Ant Financial to hand over 37.5% of its pretax profit to the Chinese e-commerce kingpin.
Ant Financial, controlled by billionaire Jack Ma, was valued at $150 billion following fundraising in June 2018.
The deal announced Tuesday brings Ant Financial closer to an initial public offering, said analysts including Hao Hong, head of research at Bocom International. But others consider a listing unlikely, saying Alibaba investors would receive exposure to Ant Financial under the new structure and that the companies would need to focus on Ant's profitability amid rising competition.
The transaction once again formally links two of the largest technology businesses in China and comes within days of Ma retiring from Alibaba, the company he founded.
Ant Financial was spun out of Alibaba in 2011, when the e-commerce giant separated its Alipay payments platform from the rest of the company. Alipay was created in 2004 to enable a trustworthy payment system for Taobao, Alibaba's e-commerce site.
"It is part of the corporate planning given the close relationship between the two entities," Hong said. "There has been speculation about Ant Financial going public for some time now. Anyone who'd want to list such a valuable holding would want to ensure they have substantial control over it. It could be the reason."
Though Ant has never disclosed a time frame for a listing, bankers and investors have speculated for well over two years of an impending IPO in New York, Hong Kong or the mainland.
"Ma had been the link between the two companies, which is now being formalized, presumably as part of Alibaba's post-Ma positioning," said Brock Silvers, managing director of investment company Kaiyuan Capital in Shanghai. "Ant is a crucial component of Alibaba's planned growth story, and both companies would like to see a successful Ant IPO. An Ant IPO, however, remains complex."
Ant's Alipay has 900 million annual active users in mainland China and more clientele through partnerships across markets such as India, Thailand, Bangladesh, Indonesia, Hong Kong, Malaysia and South Korea.
Ant Financial is highly profitable and contributed about $237 million in royalty and software service fees to Alibaba in the quarter ended June 30 under a profit-sharing arrangement, but the company faces a rising threat from longtime Alibaba rival Tencent Holdings.
Though Alipay remains the undisputed leader in China's digital payment, Tencent's WeChat Pay has gained ground in recent years and controls a 39% market share, according to Bernstein Research.
Paul Schulte, the founder of Schulte Research and an equity analyst for 27 years at companies such as China Construction Bank, Nomura and Lehman Brothers, said Tuesday's deal may take some shine off an Ant listing because investors in Alibaba would automatically receive an interest.
Jeffrey Towson, a professor of investment at Peking University who has studied Alibaba for several years, sees "no indication" that Ant Financial will conduct an IPO anytime soon, saying management would prefer to outrun competition rather than be held hostage to quarterly profits.
"[Ant Financial is] focused on growth," Towson said, suggesting that becoming a public company may force it to pay closer attention to profitability rather than fending off competition from WeChat Pay.