A resumption for Ant Group's IPO?
On 3 November 2020, the Shanghai Stock Exchange announced it was suspending the highly anticipated Ant Group’s initial public offering (IPO) less than 48 hours ahead of the planned start of trading because of new rules for fintech company. As a brief background, China’s Ant Group, a fintech affiliate of Alibaba, was expected to raise $35 billion, setting itself to be the world’s largest IPO ever via a dual-listing in Shanghai and Hong Kong, on 5 November. In each location, the Hong Kong Stock Exchange and Shanghai's STAR Market, 1.67 billion new shares were to be issued, translating to 11% of the company. Ant Group was expected to have a market value of around $313 billion.[1]
What went wrong?
A few days after suspending Ant’s IPO, mainland regulators announced draft anti-monopoly regulations designed to curb the growing influence of technology platforms, including their use of data. The proposed laws would limit cross-provincial lending, restrict maximum loan amounts and require online companies to put up at least 30 per cent of loan capital in co-lending deals with banks. According to Liu Guoqiang, a deputy governor of the People’s Bank of China, the decision to introduce new fintech regulations was “about maintaining stable, healthy market development in the long term”.[2]
The new regulations hindered the IPO as while Ant, and other online lenders, have use AI to derive loans to consumers and small and medium-sized enterprises, they have primarily relied on traditional banks for capital to provide credit to borrowers. According to its prospectus, Ant only retains about 2% of the outstanding credit balance for loans it originates, and as of June 30, the company had about 1.7 trillion yuan (US$258 billion) in outstanding consumer loans and 400 billion in small business loans.[3]
An Ant Group IPO revival?
The speed at which Ant Group revives its nearly US$40 billion IPO will depend on how quickly the company responds to the changing regulatory environment. Restarting the blockbuster IPO could take months as Ant re-evaluates its options. For now, the government is still making the final drafts to its new fintech rules.
Investors’ response
Despite the collapse of the IPO, fast-growing mainland Chinese companies continue to flock to Hong Kong and Shanghai to make their public debuts while investors are still earning greater profits in China as it opens its gates to foreign investors.
Vice-chairman of the China Securities Regulatory Commission, Fan Xinghai, said at the Bloomberg’s New Economy Forum that “international investors have responded to this move quite well” and that China “has seen a lot of inflows in the Chinese capital markets from international investors” since the Ant IPO suspension.[4] Thus, from a macroeconomic perspective, Ant Group’s IPO ‘hiccup’ is unlikely to have a short-term or long-term impact on Hong Kong and Shanghai as financial hubs.
Unsurprisingly, large institutional investors, who had prepared orders worth over a billion US dollars to participate in Ant’s IPO, were stunned at the suspension, and flooded their bankers and Ant executives with questions. Many voiced that the news pummelled their confidence in Shanghai’s STAR market and that they would now be hesitant to buy into Ant if the IPO was relaunched.[5] Nonetheless, several investors who were to participate in Ant’s Shanghai IPO, have responded somewhat positively, requesting to purchase Ant’s yuan-dominated assets instead.[6]
Sources -
[1] Deborah D’Souza, ‘Ant Group Set to Be World's Largest IPO Ever’ (Investopedia, October 2020) <https://www.investopedia.com/ant-group-set-to-be-world-s-largest-ipo-ever-5084457> accessed 23 November 2020
[2] Evelyn Cheng, ‘With Ant’s IPO on hold, China calls for fintech regulation’ (CNBC, November 2020) <https://www.cnbc.com/2020/11/06/with-ants-ipo-on-hold-china-emphasizes-need-for-fintech-regulation.html> accessed 23 November 2020
[3] Chris Bray Ant, ‘Group IPO resumption will depend on how company adapts to new fintech rules, CSRC official says’ (SCMP, November 2020) <https://www.scmp.com/business/banking-finance/article/3110153/ant-group-ipo-resumption-will-depend-how-company-adapts> accessed 23 November 2020
[4] Chad Bray, Daniel Ren and Alison Tudo-Ackroyd, ‘Ant Group’s IPO ‘hiccup’ and tech sell-off brushed off by investors amid rush to tap into China’s rebounding economy’ (SCMP, November 2020) <https://www.scmp.com/business/banking-finance/article/3109933/ant-groups-ipo-hiccup-and-tech-sell-brushed-investors-amid> accessed 23 November 2020
[5] Jeanny Yu and Emily Cadman, ‘A $3 Trillion Investor Craze Implodes After Ant’s IPO Bust’ (Bloomberg, November 2020) <https://www.bloomberg.com/news/articles/2020-11-04/a-3-trillion-investor-craze-comes-undone-after-ant-s-busted-ipo> accessed 23 November 2020
[6] Ibid. (n4)
