An employee scans a quick response (QR) code displayed on the Ant Group’s Alipay app. Ant Group is preparing for a dual initial public offering in Shanghai and Hong Kong.
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A potential U.S. blacklisting of Ant Group, a Chinese financial technology giant, is unlikely to have a big impact on its business, experts told CNBC, given that the firm’s focus is on its domestic market.
Washington is trying to get Ant Group, which is 33% owned by Alibaba and controlled by billionaire Jack Ma, onto the U.S. “Entity List”, a blacklist which restricts American companies from doing business with individuals or firms listed. That’s according to a Reuters report, citing people familiar with the matter.
The Entity List requires American companies to get a license before exporting certain products to blacklisted firms.
Ant Group is currently preparing for a blockbuster concurrent initial public offering (IPO) in Shanghai and Hong Kong, so the threat of blacklisting comes at a very sensitive time.
The trade blacklist is largely symbolic. It won’t be effective in stopping Ant from either going public or investing in critical areas.
Center for Innovating the Future
But experts said that blacklisting Ant Group won’t have a huge impact on its actual business or the upcoming debut.
“The trade blacklist is largely symbolic. It won’t be effective in stopping Ant from either going public or investing in critical areas (i.e. blockchain),” Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future (CIF), a Toronto-based consulting firm, told CNBC by email.
“But, the blacklist is effective in another respect: making other countries cautious about linking their tech ecosystems to China.”
How Ant Group is different
Operating-wise, Ant Group on the Entity List, I don’t think it’ll make a dent to their business at all.
Alipay is used in China. But some merchants abroad offer Chinese tourists the ability to pay with Alipay. Americans cannot use the mobile payments app because it’s not available there for local users.
A major part of Ant Group’s business is selling finance technology to financial institutions and generating technology service fees. Again, a large part of this is focused on China.
Less than 5% of Ant Group’s revenue is derived from overseas.
“Operating-wise, Ant Group on the Entity List, I don’t think it’ll make a dent to their business at all,” Edith Yeung, general partner at venture capital firm Race Capital, told CNBC.
Ant Group has some partnerships with American firms, however. In 2017, U.S. payments platform Stripe announced a partnership with Alipay that allowed merchants using Stripe’s system to accept payments via the mobile wallet.
And last year, Alipay and investing giant Vanguard struck a partnership to create a fund investment advisory service joint venture for Chinese users.
IPO under threat?
Ant Group’s dual Hong Kong and Shanghai IPO could be one of the biggest ever, with reports suggesting the company could snatch a valuation of $200 billion. Ant has not yet priced its IPO and the process is ongoing.
Republican Sen. Marco Rubio last week called on the U.S. government to consider ways to delay Ant Group’s IPO.
“It’s outrageous that Wall Street is rewarding the Chinese Communist Party’s blatant crackdown on Hong Kong’s freedom and autonomy by orchestrating Ant Group’s IPO on the Hong Kong and Shanghai stock exchanges,” Rubio, a Republican, said in a statement to Reuters.
“The Administration should take a serious look at the options available to delay Ant Group’s IPO,” he added.
At this point, it’s unclear what Washington could do to delay the listings.
Ant Group is well aware of the geopolitical tensions and cited it as a risk to its business in the IPO prospectus filed with the Hong Kong stock exchange. The company pointed to the export restrictions and other sanctions imposed by the U.S. on Huawei.
“These restrictions, and similar or more expansive restrictions that may be imposed by the U.S. or other jurisdictions in the future, may materially and adversely affect our ability to acquire or use technologies, systems, devices or components that may be critical to our technology infrastructure, service offerings and business operations; to access U.S. cloud-based systems and other infrastructure; and to operate in the U.S,” Ant Group said.
The company said it could also affect their ability to hire American talent and there is a possibility of sanctions affecting the company’s reputation.
“We cannot assure you that the current export controls or economic, trade or other sanctions regulations will not have a negative impact on our business operations or reputation, or that the related trend will not further deteriorate in the future,” Ant Group said.