By Julie Zhu and Josh Ye

HONG KONG (Reuters) -Ant Group on Saturday announced a surprise share buyback that values the fintech giant at $78.54 billion, well below the $315 billion touted in an abandoned IPO in 2020, in a move that may let some investors exit after a lengthy regulatory overhaul of the firm.

The news came one day after Ant was fined $984 million, which should end a years-long regulatory shake-up of the company and mark a key step to concluding a crackdown on the country’s internet sector.

Ant said it had proposed to all of its shareholders to repurchase up to 7.6% of its equity interest at a price that represents a group valuation of approximately 567.1 billion yuan ($78.54 billion).

That represents a steep 75% discount to the $315 billion valuation in 2020 for what was set to be the world’s largest IPO had it not been derailed at the last minute by Chinese regulators.

“The repurchased shares will be transferred into Ant Group’s employee incentive plans to attract talents. The repurchase proposal will also provide a liquidity option for the company’s investors,” it said.

Ant’s major shareholders, Hangzhou Junhan Equity Investment Partnership and Hangzhou Junao Equity Investment Partnership, have voluntarily decided not to participate in the repurchase, the company added.

Hangzhou Junhan and Hangzhou Junao are the entities that collectively hold more than 50% of Ant’s shares on behalf of the company’s executives and employees.

“While Ant buys back shares at a valuation much lower than the $150 billion figure in the company’s last fundraising round in 2018, the plan provides some liquidity to its existing investors,” said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management which is an investor of Ant’s affiliate, e-commerce titan Alibaba.

“Liquidity might be more important than valuation for some investors that look to exit.”

He said neither did he nor the markets expect the share buyback at this stage.

China’s central bank said on Friday that financial regulators would fine Ant and its subsidiaries a total of 7.12 billion yuan.

The imposition of the penalty is seen as paving the way for the firm to secure a financial holding company license, to focus on bolstering growth, and eventually, to revive its plans for a stock market listing.

“China needs to resolve the Ant IPO to restore investor confidence,” said Wang Qi, chief executive of China-focused asset manager MegaTrust Investment.

“Any progress here not only benefits Alibaba, but is also good for the internet and fintech industries as a whole.”

Founded by billionaire Jack Ma, Ant operates China’s ubiquitous mobile payment app Alipay as well as consumer lending and insurance products distribution businesses among others.

Ant in April 2021 embarked on a sweeping business restructuring, which included turning itself into a financial holding company that would subject it to rules and capital requirements similar to those for banks.

For the broader technology sector, Ant’s fine marks a key step towards the conclusion of China’s bruising crackdown on private enterprises, which began with the scrapping of Ant’s IPO in late 2020 and subsequently wiped billions off the market value of several companies.

Following the IPO’s cancellation and the forced restructuring, some of Ant’s global investors cut their valuation of the company, with Fidelity lowering it to $68 billion in mid 2021, Reuters has reported.

“The buyback price is higher than the valuations made by many institutions internally … so I believe that some institutions will choose to participate in the buyback,” said Hanyang Wang, an analyst at 86Research.

“At the same time, initiating a stock buyback also indirectly informs investors that the possibility of a short-term IPO recovery is unlikely.”

On Friday, Chinese authorities also announced fines against two Chinese banks, an insurer, and Tencent Holdings’ online payment platform Tenpay.

The People’s Bank of China (PBOC) said that most of the prominent problems for platform companies’ financial businesses have been rectified and that regulators would now shift from focusing on specific firms to the regular overall regulation of the industry.

($1 = 7.2205 Chinese yuan renminbi)

(Reporting by Julie Zhu, Josh Ye, Brenda Goh, Zhang Yan and Scott Murdoch; Editing by Shri Navaratnam and Kim Coghill)

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