Why the Ant IPO could be postponed for at least 6 months

Uncertainty continues to loom over the Ant IPO

The Ant Group initial public offering (IPO) was set to be the biggest in history. Between a planned dual listing across Hong Kong and Shanghai – it had already attracted retail bids totalling $35 billion – leaving both legs of the IPO significantly oversubscribed.

Then the music stopped.

On November 3 the Shanghai Stock Exchange released a statement saying that the IPO had to be postponed due to changes in the financial technology regulatory environment. The market responded with shock – bidding the share price of dual-listed Alibaba, which for reference holds a 33% stake in Ant Group – sharply down following the news.

Despite this, the exact reasons for this delay are not completely clear. Even so, below we look at the timeline that led up to this postponement, how long investors may have to wait for the IPO and how it could impact the market’s view on the company.

An Overly Critical Ma?

In many ways – Jack Ma is the ultimate self-made man. Founding Alibaba in 1999 – Ma would grow it into one of the largest e-commerce platforms in the world – delivering total revenue of RMB$509.7 billion against net income of RMB$140.3 billion in 2020.

In 2003 Alibaba and Ma established Alipay – a mobile payments company akin to the West’s PayPal. By 2014 Ma launched a re-brand – consolidating the Alipay brand in the newly created and now revered Ant Group.

Like Alibaba, the growth of Ant has been staggering – the Alipay app boasts 711 million monthly active users, over 80 million monthly active merchants and processed RMB$118 trillion in total payments volume across mainland China for the twelve months ending 30 June, 2020.

That success – brings us to the present.

At the Bund Summit, held in Shanghai on October 24 Jack Ma gave a speech that many have interpreted as overly critical of the Chinese government’s handling and approach to financial regulation. Here, Jack Ma said:

‘China does not have a systemic financial risk problem. Chinese finance basically does not carry risk; rather, the risk comes from lacking a system.’

‘China today needs policy experts, not paper pushers.’

Mr Ma also accused China’s traditional banks as operating in a manner akin to pawnshops.

Chinese regulators look to have hit back, if only subtly, with the China Digital Times reporting that Guo Wuping – a banking regulator – as having recently said:

‘Fintech companies often lured young people into overspending so that ‘some people in low income groups and young people fall deep into debt traps.’

Ant was not mentioned by name.

Regulatory Intervention – In Two Parts

Unsurprisingly, many have speculated that Ma’s comments during the Bund Summit irked Chinese officials and potentially contributed to Ant Group’s IPO postponement.

On November 2, the China Banking and Insurance Regulatory Commission (CBIRC) and the People's Bank of China (PBC) released a statement concerning a new set of draft regulations, titled: Interim Measures for the Administration of Online Small Loans (Draft for Comment).

The aim of these proposed regulations is to 'unify the regulatory and operating rules, and promote the standardized and healthy development of the online microfinance business,’ the regulator said. Importantly, while Ant Group or Alipay were not named directly, one key aspect of the draft proposal that is likely to impact Ant Group comes by way of reference to increased capital requirements. Here the CBIRC noted that one aim of the draft regulations is to:

‘Clarify the conditions that should be met in terms of registered capital, controlling shareholders, and Internet platforms to operate online microfinance business.

According Reuters, those draft regulations would mandate that micro-lenders such as Ant Group be required to maintain a RMB$5 billion ‘registered capital threshold’.

Additionally, the FT claimed that these draft regulations would 'require internet platforms to provide at least 30 per cent of the funding of their loans and to cap loans at Rmb300,000 ($44,843) or a third of a borrower’s annual salary, whichever is lower. This, noted the newspaper with have the consequence of drastically altering Ant’s risk profile – potentially impacting how investors view the stock.

Act Two

On November 3, just a day after those draft regulations were released, the Shanghai Stock Exchange stepped in – announcing that the $35 billion Ant IPO would be postponed.

The bourse, understand describing the draft regulations discussed above as a ‘major event’, noted that these proposed changes ‘may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements.’

Ant apologised to its investors in response, with the company saying it would ‘properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.’

The Ant IPO: A waiting game

Those hoping for a brief IPO postponement may be left disappointed, with Jerry Lu, a Fund Manager at Polar Capital, saying the Ant IPO is ‘not going to happen any time soon’ and that ‘It could be six months, nine months, a year or two’ – via FT.

Not only that, but according to Mr Lu, ‘That is going to have an impact on how the market values it [Ant Group] and sees the risk’ – also via FT.

As part of the company's IPO road show, analysts previously pegged Ant's valuation at between $350 billion to $450 billion, according to the South China Morning Post.

While Ant’s IPO may currently be delayed, you can still trade Chinese stocks such as Baidu, Tencent and even Alibaba – long and short – through IG’s trading platform now.

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