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Ant faces challenge in reviving global expansion

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Nearly four years ago Ant Group’s then chief executive Eric Jing made going global a core mission, taking to a Davos stage to lay out a vision of building a worldwide customer base of 2bn people within a decade.

Since then the fintech arm of Jack Ma’s Chinese internet giant Alibaba has struggled to realise its international ambitions, with investments faltering in markets from the UK to India and south-east Asia. Overseas operations still account for less than 5 per cent of Ant’s revenues.

The company hopes its blockbuster initial public offering expected this month can put it back on track, with 10 per cent of the more than $30bn it wants to raise destined for its international expansion.

But like many leading Chinese companies that have made it big in a vast home market free of international competitors, it faces a challenge replicating its success overseas.

“While Ant is hugely successful in China, the importance of international expansion is real”, said Howard Yu, professor at IMD Business School in Switzerland and Singapore. “Relying on one single market for growth always entails risk.”

The group, born out of Alibaba’s ubiquitous mobile payments platform Alipay, dominates online finance in mainland China and made a net profit last year of Rmb18bn ($2.7bn) on Rmb120.6bn in revenue.

Ant's international business is still small compared with its China operations

Getting overseas merchants to accept Alipay was the first step in its global strategy, according to one person familiar with the company’s international operations. Growing numbers of Chinese tourists venturing abroad helped Ant handle Rmb622bn in international payments last year.

Next came investments and partnerships in foreign markets. Ant now has 20 such deals, according to Capital IQ, with businesses from e-wallets to insurance providers and business process outsourcers.

Finally, Ant is harnessing Alibaba’s international ecommerce ventures Lazada and AliExpress, which encourage customers to use Alipay, the person said.

In China, Alipay’s rise accompanied that of Alibaba, whose 742m online shoppers have to use it to pay for their goods. But Alibaba lacks the same stranglehold on online shopping globally, said Ke Yan, an analyst at DZT Research in Singapore. “Internationally, Ant doesn’t have the first-mover advantage.”

Ant has sought to reach the many hundreds of millions of underbanked people in south and south-east Asia by taking minority stakes in 10 e-wallet ventures, sharing its expertise and technology with its local partners.

Ant Group's digital wallet partnerships in Asia

“Ant’s mission is financial inclusion and to get as many people to have access to what they provide,” said Jan Sodprasert, a Bangkok-based partner at McKinsey who specialises in digital financial services.

One fintech consultant, who asked not to be named because of a business relationship with the group outside of China, said Ant’s problem was a tendency to “airdrop” in Chinese executives.

“Even in south-east Asia, Ant is regarded as a very Chinese company. To get a deeper understanding they need to build a stronger local team . . . because you’re competing against incredibly strong local players.”

Increasing suspicion of China has limited Ant’s options. It has had to be a lot more “arm’s length” than it is at home, according to Peng T Ong, founder of south-east Asian venture capital fund Monk’s Hill Ventures. The question, he said, was “how good they are as investors rather than operators”.

Two of Ant’s biggest international bets face challenges. Since 2015 it has poured Rmb2.9bn into India’s Paytm, building a 30 per cent stake. Once the south Asian country’s leading payments provider, it has lost market share and reported a net loss last year that exceeded its total revenues, which were down 6 per cent on 2018.

Ant Group’s revenue breakdown

It is a similar picture at WorldFirst, the UK payments group Ant bought in February 2019 for $700m in its largest expansion into western markets. Under Ant’s ownership last year the company’s losses also exceeded revenues, according to Ant’s IPO filings.

Shane Chesson, a founding partner of south-east Asian VC fund Openspace Ventures, said that while Ant has been busy adding partners, not all of them have turned out to be market leaders.

In Indonesia, the world’s fourth most populous country, Ant-backed e-wallet platform Dana has been sidelined by local rivals.

“These JVs have ownership complexities . . . it remains to be seen if Ant can knit this network together or if larger M&A and more patience is required,” said Mr Chesson.

Mr Yu said offering its technology to other firms may be Ant’s best path to expanding and scaling abroad quickly.

This strategy has worked well for peers including insurance group PingAn, whose OneConnect fintech business has expanded rapidly outside of China by sharing its financial technology both with companies and regulators.

Some of Ant’s partners are already paying to use its services. For example, Singapore’s currency exchange platform M-Daq, in which Ant has a large minority stake, paid it Rmb158m last year in fees.

However, Mr Yu warned that Ant should not be “spreading itself too thin” in a rush to enter every market.

“US and Europe may harbour too much scepticism against a Chinese tech giant,” he said. “For Ant, it would do well staying in south-east Asia before going elsewhere.”

The company has come under attack from lawmakers in the US, where President Donald Trump’s administration is considering placing the group on a trade blacklist, according to a recent Reuters report. Any such move could have implications for its partnerships with US companies, including Mastercard.

But for investors in its IPO, Ant remains a China play. Kevin Kwek, an analyst at Bernstein said that for now, “Ant’s investment story is mostly about China”.

The international push is still in its early days and what Ant is focused on is learning about other markets, he said. And given its dominance in China and the cash at its disposal, “they, better than anyone else, are best placed to do that”.



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ExxonMobil proposes carbon storage plan for Texas port

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ExxonMobil is pitching a plan to capture and store carbon dioxide emitted by industrial facilities around Houston that it said could attract $100bn in investment if the Biden administration put a price on the greenhouse gas.

The oil supermajor is touting the scheme ahead of the US climate summit starting on Thursday, where President Joe Biden plans to announce more aggressive national emissions targets and hopes to spur world leaders to increase their own carbon-cutting goals.

Carbon capture and storage, or CCS, “should be a key part of the US strategy for meeting its Paris goals and included as part of the administration’s upcoming Nationally Determined Contributions”, said Joe Blommaert, head of Exxon’s low-carbon focused business, referring to the targets that countries are required to submit under the 2015 Paris climate agreement.

Oil and gas producers have sought to highlight their commitments to tackle emissions ahead of this week’s climate talks, which promise to heap pressure on the fossil fuel industry. BP pledged to stop flaring natural gas in Texas’ Permian oilfields by 2025, while EQT, the country’s largest natural gas producer, said it backed federal methane regulations.

The International Energy Agency has called carbon capture and storage, which uses chemicals to strip carbon dioxide from industrial emissions, “critical for putting energy systems around the world on a sustainable path”.

But the technology has struggled to gain traction as costs have remained persistently high. The most recent setback in the US came last year with the mothballing of the Petra Nova project, the country’s largest, which captured carbon from a Texas coal-fired power plant.

Many environmental groups have been critical of the oil and gas industry’s focus on carbon capture, arguing it is used to justify continued investment in oil and gas production and is not economical, especially as the costs of zero-carbon wind and solar power have plummeted.

Exxon said that establishing a market price on carbon — which has been attempted by a handful of US states, Texas not among them — would be important. The US government should “implement policies to enable CCS to receive direct investment and incentives similar to those available to other efforts to reduce emissions”, Blommaert said.

Exxon declined to comment on the carbon price it thought was needed to justify the investment, but said its plan would generate $100bn of investment from companies and government in the Houston region.

The company’s plans call for a hub that would capture emissions from the 50 largest emitting industrial facilities along the Houston Ship Channel, such as oil refineries and petrochemical plants, and ship the carbon by pipeline to reservoirs for storage deep under the sea floor of the Gulf of Mexico.

The project could capture and store about 100m tonnes of CO2 a year by 2040 if developed, Exxon said. That is 2 per cent of the roughly 4.6bn tonnes of US energy-related carbon emissions in 2020, according to the Energy Information Administration.

Exxon has been under intense pressure from investors, including a proxy fight with the activist hedge fund Engine No 1, to bolster its strategy for the transition to cleaner fuels. In February, it created a low-carbon business line that it said would spend about $3bn over the next five years.

Biden’s $2tn clean-energy focused infrastructure plan would expand carbon capture and storage tax credits. The administration said it would back 10 projects focused on capturing carbon from heavy industry, but it did not endorse a price on carbon.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 



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European stocks hit record after strong US earnings and economic data

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European equities hovered around record levels, the dollar dropped and government bonds nudged higher on Monday as markets continued to cheer strong economic data while also banking on continued support from the US Federal Reserve.

The regional Stoxx Europe 600 index gained 0.3 per cent during the morning to set a new record, before falling back to trade flat.

This follows a week of upbeat earnings from US banks as investors await results from big businesses including Coca-Cola and IBM later on Monday. Data released last week showed US homebuilding surged to a near 15-year high in March while retail sales increased by the most in 10 months.

The dollar, as measured against a basket of currencies, fell 0.4 per cent as bets on higher interest rates receded. The euro rose 0.4 per cent against the dollar to buy at $1.203. Sterling also gained 0.4 per cent to €1.389.

Federal Reserve chair Jay Powell told the Economic Club of Washington DC last week that the central bank would not taper its $120bn of monthly asset purchases until it saw “substantial further progress” towards full employment.

Haven assets such as government debt remained in demand. As prices ticked up, the yield on the benchmark 10-year US Treasury note fell 0.02 percentage points to 1.557 per cent, while the yield on the equivalent German Bund slid 0.01 percentage points to minus 0.271 per cent.

Investing convention assumes that US Treasuries and global equities move in opposite directions to cushion against falls in either asset class, but both have now rallied in tandem for an unusually sustained period.

The S&P 500, the blue-chip US stock index, has risen for four consecutive weeks to set new records. The yield on the 10-year Treasury has fallen from about 1.74 per cent at the end of March to just under 1.56 per cent on Monday as investors bought the debt. Treasuries and US stocks not have risen together for so long since 2008, according to Deutsche Bank.

Futures markets indicated the S&P would drift 0.2 per cent lower as Wall Street trading opens.

“I am not saying it’s a rational time in the markets,” said Yuko Takano, equity fund manager at Newton Investment Management. A reason for caution, she added, was signs of “bubbles” in alternative assets such as cryptocurrencies and non-fungible tokens. “There is really an abundance of liquidity. There will be a correction at some point but it is hard to time when it will come.”

“Markets may have become temporarily overbought,” strategists at Credit Suisse commented. “For now, we prefer to keep equity allocations at neutral” rather than buying more stocks, they said.

In Asia, Hong Kong’s Hang Seng index closed up 0.5 per cent and Japan’s Topix slid 0.2 per cent.

Global oil benchmark Brent crude fell 0.3 per cent to $66.57 a barrel.



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EU split over delay to decision on classing gas as green investment

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The European Commission is split over whether to postpone a decision on classifying gas generated from fossil fuels as green energy under its landmark classification system for investors.

Brussels had planned to publish an updated draft of a taxonomy for sustainable finance later this week. The document is designed to guide those who want to direct their money into environmentally friendly investments, and help stamp out the misreporting of companies’ environmental impact, known as greenwashing. 

The commission was forced to revamp its initial proposals earlier this year after the text was criticised by member states which want gas to be explicitly recognised as a low-emission technology that can help the EU meet its goal of becoming a net-zero polluter by 2050. 

Now the publication of the draft rules could be postponed again as the commission seeks to resolve the impasse. According to a draft of the text seen by the Financial Times, the commission proposed to delay the decision in order to carry out a separate assessment of how gas and nuclear “contribute to decarbonisation” to allow for a more “transparent” debate about the technologies.

But officials told the FT that some commissioners were pushing for gas to be awarded the green label now, rather than delaying the decision until later this year. 

“There are a sizeable number of voices in the commission who want gas to be included in the taxonomy,” said one official. A final decision on whether to approve the current text or delay it again for further redrafting is likely to be made on Monday.

The EU’s taxonomy is being closely watched by investors as the first big attempt by a leading regulatory body to create a labelling scheme that will help guide billions of euros of investment into green financial products.

But the process has proved divisive, as several EU governments have demanded recognition for lower-emissions energy sources such as gas. 

Coal-reliant countries such as Poland, Hungary, Romania and others that are banking on gas to help reduce their emissions do not want the labelling system to discriminate against them. France and the Czech Republic, meanwhile, are also pushing for the recognition of nuclear as a “transitional” technology in the taxonomy.

A leaked legal text seen by the FT earlier this month paved the way for gas to be considered green in some limited circumstances. That has since been removed along with other sensitive topics such as how best to classify the agricultural sector, according to the latest draft the FT has seen.

EU governments and the European Parliament have the power to block the draft if they can muster a qualified majority of countries and MEPs against it. 

Environmental groups have hailed the exercise, and urged Brussels to stick to science-based criteria in defining the thresholds for sustainable economic activity.

Luca Bonaccorsi from the Transport & Environment NGO said delaying decisions on gas and nuclear risked allowing pro-nuclear countries like France and the Czech Republic to join up with pro-gas member states “to forge an alliance that will obtain the greening and inclusion of both energy sources”.

“Should they ally, it will be impossible to resist the greenwashing of these two unsustainable energy sources,” said Bonaccorsi. 

The delays in agreeing the taxonomy have forced Brussels to abandon an attempt to use it as the basis for EU green bonds that will be issued as part of the bloc’s €800bn recovery and resilience fund. About €250bn of debt will be issued in the form of sustainable bonds over the next few years, which will make the commission one of the world’s biggest issuers of sustainable debt.



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