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FINANCE: Alibaba’s Ant Takes a Bite of Hong Kong

Bottom line: Ant Financial's purchase of 20 percent of Hong Kong restaurant ratings site OpenRice looks like a smart, incremental move to boost its presence in its first major foray to build a local customer base outside China.

Ant Financial buys into HK's OpenRice

We'll close out the week with a lighter story, with word that Alibaba's (NYSE: BABA) Ant Financial affiliate has taken a nibble at Hong Kong with an investment in the territory's most popular restaurant ratings site. On a more serious note, we should point out that this particular acquisition comes after the much higher-profile failure of Ant's bid to buy US money-transfer giant MoneyGram (NYSE: MGI), which was vetoed by Washington on national security ground.

This latest particular purchase is somewhat interesting, as Hong Kong is quickly evolving into an important test case for whether Ant can successfully export its popular Alipay electronic payments service to other markets. Alipay is already widely available throughout the world, but only as a vehicle for Chinese to make payments when traveling overseas. Thus Ant really hasn't tried to target local consumers in any market in meaningful ways outside China.

The company made a major break with that strategy last year when it began offering local currency-denominated services for residents in Hong Kong who wanted to sign on. Since then it has ramped up that effort with a number of major tie-ups with local merchants, including one with local tycoon Li Kai-shing, whose empire includes a number of major Hong Kong retail chains.

Against that backdrop, let's take a look at the latest headlines that say Ant has agreed to buy 20 percent of the popular Hong Kong restaurant ratings site OpenRice for an undisclosed price. (English article) There are no financial details, but i expect this is a relatively modest deal for Ant, perhaps costing it $20-$30 million, if that. But I can say with authority that OpenRice has quite a strong following in Hong Kong, similar to Yelp in the US, based on my own experience while living there a while back.

Moving back to the main topic, this latest tie-up fits quite nicely into Ant's gradual nibble into Hong Kong. The company has found a comfortable spot by forging tie-ups to accept its payment service in some of the territory's biggest chains, and presumably it has connections with all the local banks to enable locals to link the service to their accounts. This addition of OpenRice to its network will help to drive more traffic to its service by letting Alipay offer promotions and other activities for its users in Hong Kong. 

Overcoming Mistrust

Of course we'll have to see if Hong Kongers take to Alipay, as there's quite a high degree of mistrust towards anything from mainland China when it comes to this kind of service. Tencent's (HKEx: 700) WeChat has made an inroad into the territory, though its biggest users appear to be Hong Kongers who have lots of interaction with mainlanders. The mistrust mostly stems from belief that any personal data that goes through such mainland-based services might get "shared" -- either with government officials in Beijing or with third-party companies that might use the data for scams or other unsavory purposes.

Thus this kind of tie-up with a trusted local name like OpenRice could help Ant worm its way, so to speak, into the bank accounts of bargain-hunting Hong Kongers through one of their favorite local websites. This kind of step might be the kind of less ambitious one the company needs to take to enter other markets. That would contrast with Ant's recent attempt to buy MoneyGram for a hefty $1.2 billion, in a deal that was vetoed earlier this month by Washington on national security grounds.

Obviously such big M&A is a fast and easy way to expand quickly to a new market. But there are always integration issues, and as we saw from the MoneyGram deal there could be increasing political sensitivities that could kill future similar deals. Instead, the kind of organic growth facilitated by local strategic tie-ups like this OpenRice deal could be a better approach, as Ant tries to build its business in the run-up to a potential IPO as soon as later this year.

 
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