World’s largest IPO derailed by Beijing

World’s largest IPO derailed by Beijing. Source: AFP

Ant Group – world’s largest IPO derailed by Beijing

  • China pulls the plug on Jack Ma’s Ant Group’s US$35 billion IPO because there had been “significant change” in the regulatory environment
  • The move to halt the share sale on the eve of the listing is raising concern that government oversight of the country’s successful private sector will tighten further

Chinese authorities stalled the much-anticipated US$35 billion debut of Ant Group. because there had been “significant change” in the regulatory environment. The unprecedented decision also led to the postponement of Ant’s Hong Kong listing as well.

Headed to be the world’s largest initial public offering (IPO), Jack Ma’s fintech juggernaut was on pace to break records for investor interest. It had attracted at least US$3 trillion of orders from individual investors for its dual listing in Hong Kong and Shanghai, and in the preliminary price consultation of its Shanghai IPO, institutional investors subscribed for over 76 billion shares, more than 284 times the initial offering tranche.

Among others, the loss of the IPO is a blow to China’s efforts to make financial markets in Shanghai and Hong Kong viable rivals to New York. The fintech giant was scheduled to start trading tomorrow.

Ant was founded by Ma in 2004 as Alipay, an arm of Alibaba Group, and was spun out as Ant in 2014. Since then its payments business has become the largest in the world, outstripping Visa and Mastercard as it processed US$17 trillion of transactions in the year to June.  

The 11th-hour halting

As stated in a Bloomberg report, Ma’s words cost him US$35 billion. Days before the listing of his Ant Group on the two stock exchanges, Ma at the Bund Summit in Shanghai criticized the existing global financial supervisory system as not fit for China’s purpose as a young, growing economy striving for innovation

Then, on Monday, regulators summoned Ma, Ant’s executive chairman Eric Jing, and chief executive, Simon Hu, to a meeting where they were told the company’s lucrative online lending business faced tighter government scrutiny. Of course, the meeting tempered the frenzy surrounding history’s biggest stock-market debut. 

The meeting took place as Chinese authorities published new draft rules for online micro-lending. Inevitably, investors have foreseen Ant falling under new Chinese regulations on financial conglomerates.

In fact, the fintech company has been hit with a wave of fresh rules in recent months as China tightens control over online lenders and companies that operate multiple financial business lines. These have included capital and licensing requirements, a cap on loan rates, and limits on Ant’s use of asset-backed securities to fund quick consumer loans. 

With more than 700 million monthly Alipay users, Ant has made partnering with traditional banks a centerpiece of its strategy. Its lending platforms extended credit to about 500 million people in the 12 months through June, charging annualized rates on its smaller loans of about 15%.

The company said in its prospectus that about 2% of the 1.7 trillion yuan (US$254 billion) of loans it facilitated as of June were currently on its balance sheet.

New measures proposed by the banking regulator on Monday for online lenders included imposing a cap on the number of loans to be offered to individual borrowers as well as the leverage. This means the draft rules could deal a major blow to Ant as they require platform operators to provide at least 30% of the funding for loans. 

The Wall Street Journal reported that Malaysia’s Khazanah Nasional Bhd, along with the sovereign wealth fund of Singapore (Temasek Holdings Private Ltd), the Canada Pension Plan Investment Board, and private-equity firms Silver Lake, Warburg Pincus, Carlyle Group, and General Atlantic, was among the biggest foreign buyers — investing at least US$500 million each in 2018, citing Ant’s listing prospectus.

It said other well-connected buyers in 2018, according to the prospectus, included Hong Kong billionaire and tycoon Li Ka-Shing, the children of Tung Chee-Hwa — Hong Kong’s chief executive from 1997 to 2005 — and the son of Taiwanese tycoon Samuel Yin. All invested using private investment vehicles.

One may argue that Ma’s digital empire is increasingly veering outside that circle of control. Perhaps suspending this listing may serve as a reminder of who really calls the shots.