Ant Group's suspended IPO: what you should know?
Chinese regulators halted Ant Group’s highly anticipated IPO a few days before its debut, sending reverberations across financial markets. Shares of Alibaba, which owns a roughly 33% stake in Ant Group tumbled by more than 7% in Asia trade on Wednesday and more than 8% in New York.
Ant Group was seeking to raise more than $34 billion, in what would have become the world’s largest IPO and transformed the company into the world’s most valuable financial company.
The suspension of the IPO came after Chinese financial regulators summoned and interviewed Ant Group’s controller Jack Ma, Executive Chairman Eric Jing, and CEO Simon Hu. On Tuesday, the Shanghai Stock Exchange referred to that meeting in explaining why it has suspended the IPO. Read more on the latest developments on the suspended IPO.
The IPO
Ant Group, formerly known as Ant Financial and Alipay, is an affiliate company of the Chinese Alibaba Group. Ant Group is the world’s highest-valued FinTech company, and most valuable unicorn company, with a target valuation of US$280 billion. The company was founded by Alibaba founder Jack Ma.
Ant Group was seeking to raise more than $34 billion in what is likely the world’s largest IPO. The IPO was to be listed jointly in Hong Kong and Shanghai exchanges, with the hope of raising about $17.23 billion in each market, according to regulatory filings.
Following the IPO, Ant Group will have a market valuation of about $315 billion, bigger than JP Morgan Chase (the largest bank in the US) and more than the GPD of Egypt and Finland. The IPO will also lift founder Jack Ma’s fortune to $71.6 billion, making him the world’s 11th-richest person on the Bloomberg Billionaires Index.
Shares were to start trading in the Hong Kong exchange this week (November 5) and a later date in Shanghai. Hong Kong shares were priced at HK$80 ($10.32), and shares on Shanghai’s tech-oriented STAR Market exchange at 68.8 yuan ($10.27).
IPO Suspended
The world-record-setting IPO was suspended Wednesday after the Group’s controller Jack Ma, Executive Chairman Eric Jing, and CEO Simon Hu were summoned and interviewed by Chinese financial regulators. In a statement, the Shanghai Stock Exchange said Ant Group reported “significant issues,” which means it may not meet the conditions for listing or “information disclosure requirements.”
Bloomberg reported that Chinese authorities are planning a bigger crackdown on Ant Group, starting with funding curbs targeted at the company’s biggest source of revenue: its credit platforms that funnel loans from banks to millions of consumers across China.
China is demanding capital increases for the fintech giant, and the IPO cannot take place until capital a capital shortfall is fixed. As such, the company will need to boost capital and reapply for national licenses before the sale can go ahead.
The suspension of the IPO has threatened over $400 million in fees that bankers such as Citigroup Inc. and Morgan Stanley were poised to earn for facilitating the deal. Top executives close to the transaction said they were shocked and trying to figure out what lies ahead following the suspension, Bloomberg reported.
What next for Ant Group?
On Monday, the Chinese central bank and regulators issued new draft rules for online micro-lending, which could affect Ant Group. The rules recommend tightening of regulations for online micro-lending companies to help contain potential financial risks and rein in rising debt levels. These rules foreshadowed Ant’s listing suspension on Tuesday.
The draft, open for public feedback until December 2, requires small online lenders to provide at least 30% of any loan they fund jointly with banks, which is widely considered to be a key rule that will hurt the profitability of Ant’s current business model. Ant’s two co-lending subsidiaries Huabei and Jiebei will no longer be allowed to sell wealth management products based on the new rules, Reuters reported.
Analysts said Ant will need to abide by these rules and disclose their financial impact to press ahead with its plans to list in Shanghai and Hong Kong. Other analysts have noted that the new requirements mean that Ant’s IPO will likely be unable to go ahead in the short-term.
IPO Suspended, not canceled
Analysts noted that since Ant as well as the Shanghai and Hong Kong stock exchanges described the listing as being “suspended”, it will still press forward once major issues have been resolved.
Ant Group has apologized for the suspension of its IPO and announced it is committed to working through the regulatory concerns with the Hong Kong and Shanghai stock exchanges. The company said it suspended its Hong Kong listing after being informed by the Shanghai Stock Exchange that the IPO would be delayed.
“Ant Group sincerely apologizes to you for any inconvenience caused by this development,” the statement said. “We will properly handle the follow-up matters following applicable regulations of the two stock exchanges. We will overcome the challenges and live up to the trust in the principles of stable innovation; embrace of regulation; service to the real economy; and win-win cooperation.”
Alibaba Group announced it would support the Ant Group through the regulatory hurdles. “We will be proactive in supporting Ant Group to adapt to and embrace the evolving regulatory framework,” a spokesperson for the company said. “We have full confidence in Ant Group colleagues’ ability to do a good job. Society has high expectations for Alibaba. We will continue to work hard to not only meet but exceed expectations and fulfill our responsibility to society.”