One of the world’s biggest companies is due to float. Here’s how UK investors can participate.
A blockbuster IPO of China's Ant Group is about to value the fintech giant at more than US$200 billion and heighten the focus of UK investors on Scottish Mortgage Investment Trust (LSE:SMT)
Ant, which is due to list this month, is one of the tech-focused trust's biggest unlisted holdings and the 15th largest overall with 1.6% of the £15.3 billion fund at the end of August.
FTSE 100-listed Scottish Mortgage - the flagship investment trust of Baillie Gifford - has further exposure to the IPO through Alibaba (NYSE:BABA), as the Chinese e-commerce giant still holds a 33% stake after spinning off the payments group in 2011 when it was known as Alipay.
Alibaba accounts for 5.8% of the fund, behind 14.3% for Tesla (NASDAQ:TSLA) and 9.1% for Amazon (NASDAQ:AMZN). The tech exposure makes Scottish Mortgage one of this year's best performers in the FTSE 100 index.
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Its Ant holding is built on that long-term relationship with Alibaba, having seen Ant's potential beyond just payments into other areas of financial services, such as wealth management and loans. There are now reportedly more than 900 million monthly users of the Alipay app.
A fundraising in June 2018, which was supported by Baillie Gifford, valued Ant at $150 billion but there are estimates that the company could be worth between $200 billion and $300 billion when the IPO finally takes place. The flotation is set to raise as much as $30 billion.
The top end of the valuation would be $70 billion more than the current market cap of PayPal Holdings and the same as Wall Street banking giant JP Morgan Chase & Co. HSBC, the nearest equivalent in London, is worth a paltry $63 billion in comparison.
The forthcoming listing will see between 10% and 15% of Ant shares offered in Hong Kong and on Shanghai's equivalent to the Nasdaq, known as the STAR market. While these markets present challenges for investors wanting to take part in one of the world's largest IPOs, Scottish Mortgage and New York-listed Alibaba offer potential exposure.
Investors need to remember, however, that these indirect routes won't be a straight play on the performance of Ant. Other options include Fidelity China Special Situations (LSE:FCSS), which has backed Alibaba since before its record-breaking $25 billion IPO in 2014.
China’s equivalent to US online retailing giant Amazon, Alibaba has made huge progress in its two-decade long history. A new chapter for the company recently commenced when founder Jack Ma passed the leadership reins to Daniel Zhang. Alibaba generates revenues mainly by selling advertising and promotional services to third-party merchants that list products on its e-commerce sites.
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Tom Slater, head of the US equities team at Baillie Gifford, highlighted the attraction of its spin-off Ant Group in a note to clients in December 2018.
He said at the time: “It has more than 600 million users but, because it has a great deal of information about those users, what adverts they’re looking at, what they’re researching online, what products they’re interested in, what they’ve been buying, where they’ve been getting those products delivered, it is able to perform all sorts of financial services functions, much more effectively than the traditional banking sector.
“That’s allowing it to grow beyond payments, into wealth management, insurance, lending and do those jobs much more effectively than we’ve seen western predecessors ever manage to accomplish.”
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