Ant Group’s IPO Debut Fiasco Is Set To Clip Its Wings, Abolish Value
China’s surprise suspension of Ant Group’s record $ 37 billion listing (roughly Rs. 2.75.1 billion rupees) is likely to delay rather than destroy its chances of a stock market debut, although the valuation of the financial technology giant and growth prospects will suffer.
The last-minute ambush by China’s regulators was seen by analysts and investors as an attempt to cut back Ant founder Jack Ma and their financial services empire downsized, but they expected it to eventually list in Hong Kong and Shanghai as planned.
“Ant’s business is likely to be constrained by new financial regulations. As a result, the price of the relaunched IPO will likely be reduced,” said Andrew Collier, managing director of Orient Capital Research.
Ant has tried to present itself as a technology company rather than a financial giant, and its valuation thus far has benefited from its technological focus.
But Chinese regulators have been uncomfortable with parts of its expanding empire, namely its lucrative online lending business, which contributed nearly 40 percent of its total revenue in the first half of the year.
Under the draft rules released Monday, online lenders in China would have to invest more of their own loan capital, which is expected to hurt Ant’s business model. Ant’s joint loan subsidiaries Huabei and Jiebei Nor would they be able to sell wealth management products, analysts said.
The China Securities Regulatory Commission (CSRC) said on Wednesday that recent regulatory changes could have a “major impact” on Ant’s business structure and earnings model.
He said suspending the initial public offering (IPO) was a responsible move for investors and markets alike.
The suspension was seen as a surprising reprimand for billionaire Ma, a former English teacher who built the e-commerce giant. Alibaba and its subsidiary Ant in two of China’s biggest success stories.
Ma’s net worth nearly doubled after the IPO to $ 59 billion (roughly Rs. 4,38,650 crore), based on Ant’s stock valuation. Instead, his estimated wealth fell $ 3. 1 billion (roughly Rs. 22.3 billion rupees) after shares in Alibaba, in which it has a 4.8 percent stake, fell 8.1 percent in New York on Tuesday.
Shares of Alibaba, which owns a third of Ant, closed 7.5 percent lower in Hong Kong on Wednesday and traded nearly 3 percent higher in New York.
The Shanghai Stock Exchange’s decision on Tuesday to suspend the IPO followed a meeting between China’s financial regulators and Ant executives, including Ma, who were told the company’s online lending business would face closer scrutiny, sources told Reuters.
The exact nature of the regulators’ concerns and how long a suspension could last is unknown. The Shanghai Stock Exchange described the meeting as a major event that could see Ant be disqualified from the list.
Ant said in a presentation on Wednesday that he will maintain close communication with regulatory authorities and the Hong Kong and Shanghai exchanges on the progress of its IPO and listing and that it would release information in a timely manner.
Ma’s public criticism last month of financial regulations as a stifling innovation had put him on a collision course with regulators in China, analysts said.
In the public interest
However, regulators have also been uncomfortable with banks increasingly using microlenders or third-party technology platforms like Ant to underwrite loans amid fears that defaults could escalate and loan quality deteriorate in an economy. hit by the coronavirus pandemic.
At a regular press conference in Beijing, Wang Wenbin, spokesman for the Chinese Foreign Ministry, said: “(The suspension) is a decision taken to better safeguard the stability of the capital market and protect the rights and interests of investors. “.
Family investors bidding a record $ 3 trillion (roughly Rs. 2,23.04,250 crore) in Ant, equivalent to Britain’s annual economic output, were shocked after regulators abruptly suspended it. That would have been the biggest action in the world. market debut.
The cessation of the IPO has not only hurt Ant, but also the leading bank, China International Capital Corporation (CICC), as a significant payday and a jump in global banking rankings are likely to be missed. investment.
Chinese state media on Wednesday described the move as necessary and in the public interest.
“The basic message of the Chinese regulators’ intervention in Ant’s IPO is that this risk reduction agenda remains the top priority. No innovation is so important that it can be allowed to create financial instability,” said Gavekal’s Andrew Batson. Research.
Batson said Ant is almost certain to return to the market, but that it may have to make substantial changes to its internal organization and business model to comply with regulatory requirements.
Analysts pointed to a consultation paper issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission on Monday that recommended tightening regulations for online microcredit businesses as a harbinger of regulators’ move against Ant.
“It is disappointing because there was a lot of work on the part of all parties and it still amazes us that this new regulation has not been dealt with earlier,” said a Hong Kong-based fund manager who bought shares in the IPO.
“The IPO will return, but the question is the opportune moment. And the valuation will certainly be lower,” said the fund manager, who declined to be named because he was not authorized to speak to the media.
Iris Tan, Senior Equity Analyst at Morningstar, said she thought regulators were aiming to level the playing field for fintech players and traditional financial institutions and that she expected Ant would be required to have more registered capital for its trading business. Consumer credit.
Shares of Chinese banks rose on Wednesday, reflecting the possibility of a more level playing field, with the CSI300 bank index rising 1.7 percent.
But few people were willing to risk guessing how long the delay might last or how much Ant’s valuation might drop.
Its listing had been set to value Ant at $ 315 billion (roughly Rs. 23,41,600 crore), which would have made it the fifth most valuable company in Asia and worth more than the Industrial and Commercial Bank of China, the world’s largest bank by assets.