ALIBABA Group Holding Ltd.’s finance affiliate is planing an initial public offering (IPO) on Shanghai’s main board in what could be China’s highest IPO valuation since 2010, said sources familiar with the matter.

    Zhejiang Ant Small & Micro Financial Services Group Co. (Ant Financial) has been profitable for three years, enabling it to meet the listing requirements, and may begin the process as soon as this year, the sources said. The owner of Alipay, China most popular payments system, prefers a dual listing with Hong Kong if it gets regulatory approval, the sources said.

    Ant Financial, which is controlled by Alibaba founder Jack Ma, dominates payments on China’s biggest e-commerce platforms through Alipay and also manages Yu’E Bao, the nation’s largest money-market fund. The company is currently targeting a private round of fundraising for at least US$3.5 billion at a valuation of about US$60 billion, sources familiar with the matter said in April.

    China’s stock listing rules requires companies to be profitable for at least three years and accumulate a profit of more than 30 million yuan (US$4.6 million). The entities also need to generate accumulated cash flow of at least 50 million yuan, or post a total of 300 million yuan for revenue in the latest three years, according to the regulations.

    Ant Financial meets those measures, said the sources, who have direct knowledge of its earnings. The sources didn’t say how much the company would seek to raise or at what valuation it would have at listing.

    An IPO at a US$60 billion valuation would be the biggest on the mainland since Agricultural Bank of China Ltd. listed in Shanghai in 2010.

    Ma said last year he was open to a Hong Kong listing if regulators welcomed it. Alibaba’s own plans to list in Hong Kong in 2014 were derailed because the city wouldn’t waive a ban on multiple share-class structures and the e-commerce operator instead held a record IPO in New York.

    Alibaba is entitled to about one-third of Ant Financial’s stake with regulatory approval, according to a 2014 filing to the U.S. Securities and Exchange Commission. Alibaba has perpetual rights to 37.5 percent of the finance arm’s pretax earnings until it acquires the stake, the filing said.

    Ant Financial paid Alibaba 502 million yuan in the December quarter, compared with 411 million yuan a year earlier, according to an Alibaba filing. That implies Ant Financial had pretax profit of at least 1.3 billion yuan for the period. The company posted net income of 333 million yuan in 2011, according to filings from the local branch of the State Administration for Industry & Commerce.

    An alternative option would be for Alibaba to receive a one-time payment equivalent to 37.5 percent of the value of Ant Financial determined prior to its IPO, which would amount to at least US$22.5 billion based on its current valuation.

    The agreement was brokered after a dispute between Alibaba and Yahoo! Inc. in 2011. At the time, Alibaba transferred Alipay into an entity that was controlled by Ma, citing concerns that it wouldn’t be permitted to conduct business in China while it had foreign ownership.

    Ant Financial has evolved from an outsider in an industry that needed “stirring up,” as Ma described two years ago, to an online giant now working with the largest State-owned players. The country’s sovereign wealth fund China Investment Corp. and an investment vehicle of China Construction Bank Corp. are leading its latest round of fundraising, sources have said. Ant Financial also counts the national social security fund as a backer. (SD-Agencies)