(Yicai Global) Feb. 2 -- Alibaba Group Holding Ltd. said that it has agreed to take a stake of nearly one-third in Ant Financial Services Group, setting the Alipay operator up for an initial public offering.
"We have agreed to a 33 percent equity stake in Ant Financial that will strengthen our strategic relationship pursuant to the series of agreements reached with Ant Financial in 2014," the Hangzhou-based company said in a press release yesterday.
Once the deal closes, Ant Financial will have a more stable equity structure and it will not need to pay royalty and technology service fees amounting to 37.5 percent of its pretax profits to Alibaba, which will free up cash flow that could help it list.
"This acquisition of Ant Financial's stake could be a preparation for its potential IPO," Bloomberg quoted Pacific Epoch analyst Steven Zhu as saying.
"Alibaba will acquire newly-issued equity from Ant Financial in exchange for certain intellectual property rights owned by Alibaba exclusively related to Ant Financial," the Chinese e-commerce behemoth said. "There will be no cash impact to Alibaba following completion of the transaction."
Shortly after Ant Financial's establishment, Alibaba founder Jack Ma said that Alibaba was unable to list on China's A-share market for various reasons, and he hoped that its affiliate, Ant Financial, would be able to in the future.
Ant Financial has attracted backing from the National Social Security Fund, CIC Capital Corp., China Life Insurance Co., China Post & Capital Fund Management Co. and China Construction Bank Corp.
The reform of the Hong Kong Stock Exchange has made it more likely that Ant Financial will go public there. The group may dual list, floating in Hong Kong and Shanghai.
Brands under Ant Financial include Alipay, Ant Fortune, Zhima Credit and MYbank.