(CapitalWatch, June 22, Hong Kong) Jack Ma's Alibaba and its fintech affiliate Ant Group have operated in tandem since Ant was split from the e-commerce giant, but Beijing's regulatory crackdown is forcing them apart.
Alibaba (NYSE: BABA; HKEX: 9988) and Ant have been arguably the main targets of Beijing's regulatory crackdown. Last year, Alibaba was forced to pay millions in fines for antitrust violations after Ant's failed mega-IPO.
In 2020, Ant's would-be $34 billion initial public offering was nixed by regulators and the company has been on a two-year long restructuring campaign ever since.
Ant split from Alibaba over a decade ago, but the affiliates have continued to operate in close quarters.
When Ant initially became independent, the fintech firm entered an agreement to pay 37.5% of its pre-tax profit to Alibaba. After that agreement ended, Alibaba acquired a 33% stake in Ant.
Jack Ma still heads Ant Group and doesn't hold an executive or board position at Alibaba, but he's still highly influential in the company. Ma is a member of the Alibaba Partnership, which has the power to nominate a majority of the board. Nine Ant executives also sit on Alibaba's 38-person board.
Now the companies are increasingly distancing themselves to rebuild after two years of declining performance. According to a report from Reuters, inside sources say the companies are operating more independently than ever before.
The affiliates, according to Reuters, are increasingly restricting access to each others' services and competing for clients. Ant is reportedly shifting from touting its affiliation with Alibaba to independence from the e-commerce giant.
Ant has two Alibaba executives on its board, but the company has been reshuffling leadership recently. Alibaba executive Jiang Fang is one of a handful of board members who have left during the change.
In Ant's Environmental, Social and Governance report, it said it's aiming to make half of the board independent directors. The company said the move is to ensure the "independence and validity" of board operations.
In recent weeks, rumors have swirled that Ant may be getting back in Beijing's good graces.
Reports circulated earlier this month that Ant had received tentative approval to relaunch its IPO. The claims were swiftly denied by both Ant and the China Securities Regulatory Commission. Last week, it was also rumored that the People's Bank of China accepted Ant's application to set up a financial holding company, but state media denied this.
Regulators have been slowing their crackdown on Chinese tech companies. But as two of the largest targets in the campaign, Alibaba and Ant are going to need to work harder to get back on track. It's likely that the two companies will only become more estranged as they work to pull themselves out from under the intense scrutiny.