Ant employees expected windfall, but got unsellable shares

Many of Ant's 16,000-plus employees have been granted restricted stock options known as Share Economic Rights.
Many of Ant's 16,000-plus employees have been granted restricted stock options known as Share Economic Rights.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - They were just days away from a multibillion-dollar windfall.

But now employees of Mr Jack Ma's Ant Group are stuck holding shares so difficult to value that even the company itself is struggling to determine a fair price. It has shelved a share buyback programme for current and departing staff, in part because of uncertainty over how to value the company, according to Ant executives familiar with the matter.

The move underscores two intertwined challenges facing Ant, four months after the Chinese authorities torpedoed its US$35 billion (S$46.6 billion) initial public offering (IPO): The fintech giant's future is still shrouded in doubt due to an ongoing lack of regulatory clarity, and employee morale is increasingly under threat. Ant is bracing for departures after it pays bonuses in April, the executives said, asking not to be named discussing private information.

Few doubt that Ant's prospects have worsened dramatically since China began tightening regulations on the fintech sector, but the opacity surrounding the new rules has made it difficult to put a number on the damage.

Bloomberg Intelligence analyst Francis Chan, for instance, has lowered his estimate for Ant's valuation three times since the IPO was scuttled. He now pegs the company's net worth at less than US$108 billion, about 60 per cent lower than the level implied by Ant's listing plan in November.

Meanwhile, several Chinese tech giants that compete with Mr Ma's businesses for talent have seen their shares soar in recent months, generating big gains for employees with stock options. Arch-rival Tencent Holdings has climbed about 16 per cent in Hong Kong trading over the past four months, while e-commerce giant Meituan has jumped 25 per cent. Kuaishou Technology has surged 173 per cent since its February listing.

Some Ant employees who joined the company in the run-up to the planned IPO have quit rather than hold out for a revival of the listing, people familiar with the matter said. Others are stressing over their personal finances after buying cars or paying down payments on new homes in anticipation that the IPO would be a success, one person said.

While employee holdings would have been subject to a three-year lock-up period had Ant's listing gone ahead in November, many anticipated the stock's value would continue climbing after the IPO. That view is now far less prevalent.

Ant declined to comment.

The company initially suspended its employee buyback programme in July as it prepared for the IPO, the Ant executives said. It has held recent discussions about the programme but has been unable to settle on a plan for reviving it, one executive said.

Many of Ant's 16,000-plus employees have been granted restricted stock options known as Share Economic Rights (SERs), each representing 5.53 shares.

The awards, which account for a significant portion of total compensation for some employees, are usually subject to a four-year vesting schedule, with 25 per cent free from the lock-up upon the first anniversary and 25 per cent every year thereafter.

Before Ant's buyback programme was halted, departing employees would sell shares back to the company at a valuation in line with the company's most recent funding round, while existing employees could participate in periodic buyback rounds, people familiar with the matter said. Ant was valued at US$150 billion in a 2018 financing.

Outstanding SERs totalled 114 million at the end of June, according to the latest data disclosed by Ant. If valued at the company's planned IPO price in November, they would have been worth a combined 43 billion yuan (S$8.85 billion).

Ant is still exploring possibilities to revive its IPO, one person familiar with the matter said in early February. But given the ongoing regulatory clampdown, it is unclear how long it might take for the authorities to sign off on a listing. In any case, employees are likely looking at a substantially reduced payout when they are eventually allowed to cash in.

That will make it tougher for Ant to retain talent, though for the opposite reason envisioned by the company in its IPO prospectus last year.

"We have a number of employees, including many members of management, whose economic interests in our company could give them a substantial amount of personal wealth," Ant said on the eve of what it expected to be a blockbuster listing. "If we are unable to motivate or retain these employees, our business may be severely disrupted and our prospects could suffer."