Everything you need to know about Ant Group’s failed IPO

Everything you need to know about Ant Group’s failed IPO
Source: Aly Song, Reuters
The upending of Ant’s IPO comes as Chinese financial authorities had recently revealed new proposals to regulate the growing fintech industry in China.

Jack Ma’s Ant Group, the financial services company behind popular Chinese digital payments app Alipay, was widely expected to stage a record-breaking Initial Public Offering (IPO) on both the Hong Kong and Shanghai (mainland China) stock exchanges in November, potentially raising funds upward of US$30 billion.

These expectations have, for now, been completely upended.

Following a meeting between Ant Group backer Jack Ma and Chinese regulators, the Shanghai Stock Exchange notified Ant that it no longer met requirements for its proposed listing, sending backers into a frenzy and Ma’s own personal net worth into free fall.

Reports of what exactly led to Ant’s IPO falling through are scarce. The conversation between China’s financial regulators and Ant Group is said to have revealed “major changes in the fintech regulatory environment,” which were sufficient enough to topple Ant’s expected November IPO.

The sudden turnaround in Ant’s fortunes comes as the company had previously seemed likely to pull off its record-breaking public offering. Ant had received approval for staging part of its IPO in Hong Kong in mid-October, with approval from Shanghai appearing a foregone conclusion.

With its IPO future uncertain, Ant’s fortunes have suffered a quick reversal from setting records to now being set adrift.

Expectations upended

Ant Group, backed by one of China’s richest men, Jack Ma, is the company behind Alipay, one of China’s largest digital payments apps which is used by more than 700 million people and 80 million businesses a month in China.

Plans for an Ant IPO had been in the works for some time. In October, the group was cleared by the China Securities Regulatory Commission to stage one leg of its dual IPO on the Hong Kong Stock Exchange.

Approval to stage the second leg, on the Shanghai Stock Exchange in mainland China, was expected to be relatively assured as a result.

The IPO was expected to be the largest in history. The IPO record is currently held by petroleum and natural gas giant Saudi Aramco, whose 2019 IPO raised US$29 billion from a 1.5% share sale.

Ant’s IPO could’ve raised the group’s valuation to some US$300 billion.

Instead, Ant faces a complete reversal of its fortunes.

Following a meeting between Ma and Chinese financial regulators, Shanghai Stock Exchange announced that Ant’s IPO no longer met the requirements for listing. Ant, for its part, apologized to investors “for any inconvenience,” saying it would cooperate with regulators and “wait for their further notice with respect to further developments of our offering and listing process.”

The upending of Ant’s IPO comes as Chinese financial authorities had recently revealed new proposals to regulate the growing fintech industry in China. Though not targeted specifically at Ant, the new proposals coincided with Ant’s meeting with regulators.

Ma had previously spoken out against Chinese financial regulators during a recent speech in Shanghai, claiming their regulation impacted innovation. Ma argued that “we cannot use yesterday’s methods to manage the future.”

Interested parties took an immediate hit after the announcement.

Jack Ma’s personal net worth reportedly dropped some US$3 billion following the announcement of the stalled IPO, with Alibaba Group Holding Ltd’s (founded by Ma) United States-trade shares falling by 8.1% on the New York Stock Exchange, the most in over 5 years.

The collapse of the IPO has also caused Ant Group parent company Alibaba to shed a valuation of some US$841 billion down to the region of US$772 billion as a result.

A systemic risk?

US multinational banks that had supported Ant Group through the IPO process were also set to lose out.

US banks that supported and advised Ant’s deal, including Citigroup Inc. and JPMorgan Chase & Co., and who were previously accused by Republican Senator Marco Rubio of “rewarding the Chinese Communist Party’s blatant crackdown on Hong Kong’s freedom and autonomy,” could miss out on hundreds of millions of dollars worth of fees that would’ve been due for their assistance on the deal.

This reversal of Ant’s fortunes may also just be the beginning. Chinese financial authorities are also reportedly planning a crackdown on lenders using Ant’s platforms, “after years of allowing them to operate without capital and leverage requirements imposed on banks,” according to Bloomberg.

Chinese regulators had been growing concerned about the growth of the fintech industry in China and whether companies such as Ant Group posed a “systemic risk” to the economy by providing loans and banklike services, despite not being classed as banks.

Chinese regulators have also told Ant that any future IPO would not go ahead unless the financial services group complies with new capital requirements and other restrictions that came into force beginning this November.

For Ant, the announcement of its collapsed IPO will have come as less-than-welcome news, especially given the high expectations and interest in its share sale.

But with the group stating it will “properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges,” there may yet be time for Ant’s comeback.

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