A higher valuation for Alibaba Group Holding Ltd.’s finance affiliate ahead of a stock sale will yield 12 new billionaires, including the e-commerce giant’s Chief Executive Officer Jonathan Lu and Chief Risk Officer Shao Xiaofeng.

Zhejiang Ant Small & Micro Financial Services Group Co., which owns payments processor Alipay, is valued at about $50 billion, according to people familiar with the matter. Ant Financial is weighing a private placement before going public in 2016, and details of the planned fundraising aren’t finalized, said the people, who asked not to be identified because the discussions are private.

Alibaba’s own record-setting IPO in September briefly made Chairman Jack Ma Asia’s richest person. He has a $26.3 billion fortune as of yesterday, according to the Bloomberg Billionaires Index. The dozen billionaires from the payment processor’s bigger valuation include Alibaba’s Chief Operating Officer Daniel Zhang and Chief People Officer Lucy Peng.

“It’s got formidable room for growth,” said Cyrus Mewawalla, managing director of London-based CM Research Ltd.

“As Alibaba expands in global markets, so could Alipay. If technology companies do well, then their owners become billionaires.”

Eoin Treacy's view

Alibaba has three main business units. The wholesale “China to the rest of the world” arm that bears the company’s name, Tmall which allows third party companies to market their goods to Chinese consumers and its finance arm offering outsized deposit rates and the ability to pay for goods on the company’s various sites. The first two were part of last year’s IPO and it is looking increasingly likely that the finance arm is now being prepped for sale. 
Interest rate liberalisation continues at a snail’s pace in China. The rate on 12-month deposits is 2.75% while the lending rate is 5.6%. Alipay, with the creation of its money market fund pays a return in excess of the lending rate. Just how it can do this is open to question and raises the possibility that the system is a pyramid scheme. China’s banks are tied into the formal banking system and therefore cannot compete which has allowed Alipay to grow in a vacuum of competition. However the risk is that it will soon be forced to classify itself as a bank and therefore become susceptible to tighter regulation, alternatively the interest rate mechanism will be liberalised and China’s heavyweight banks will be allowed to compete. 

This week’s censure of Alibaba by the Chinese government for doing nothing to stem the tide of counterfeit goods for sale via its portals, coming in tandem with disappointing earnings and high spending, highlights the regulatory risk of challenging the status quo within a command economy. 

The share held at $90 today following yesterday’s decline but a clear upward dynamic would be required to signal more than temporary support at this level.