China’s Ant: As US election nears, financial giant rushes for IPO

Ant is trying to launch its estimated $35bn initial public offering in Shanghai and Hong Kong before the November 3 US election to avoid potential market volatility.

Alibaba IPO, Ant Financial
Ant, China’s biggest payments company, is waiting for approval from Hong Kong for its listing [File: Paul Yeung/Bloomberg]

Jack Ma’s Ant Group has a narrow window to make its much-anticipated market debut ahead of U.S. election turbulence. Now its bankers must grapple with any potential delays stemming from a debate in Washington over restrictions on the payments behemoth.

Discussions over how and whether to restrict Ant — as well as Tencent Holdings Ltd.’s payments systems — have accelerated among senior U.S. officials in recent weeks though a decision isn’t imminent, Bloomberg reported.

They come as Ant is expected to raise about $35 billion from simultaneous initial public offerings in Shanghai and Hong Kong as early as this month. China’s biggest payments company already has approval for its mainland listing, but is waiting for a hearing with the Hong Kong stock exchange. That green light would need to come roughly by the middle of October if Ant aims to beat the U.S. presidential vote on Nov. 3.

The Hong Kong hearing before a 28-member panel of external professionals was expected last week but has yet to happen. If it’s delayed much further, the IPO risks straddling the U.S. election where some expect a surge in postal ballots to create a prolonged period of uncertainty. The one-week gap in Hong Kong between the pricing of an IPO and the start of trading means investors would be left exposed to an increase in market volatility.

Ant is said to be targeting a valuation of $250 billion, which would make it one of the world’s most valuable financial firms ahead of Bank of America Corp. Its attraction rests on its reach into the pockets of more than 700 million monthly users, most of whom are in China where the ubiquitous Alipay app offers everything from loans and travel services to food delivery. Still, potential U.S. restrictions would raise questions about Ant’s overseas ambitions and could hurt its relationships with American firms.

Ant Group businesses chart [Bloomberg]

“Ant’s business is mostly in China and is self-sufficient,” said Ram Parameswaran, founder of San Francisco-based Octahedron Capital Management, which owns shares in Ant’s affiliate Alibaba Group Holding Ltd. and plans to invest in the IPO. “It is highly unlikely that U.S financial institutions will be banned from doing business with Ant.”

Ant declined to comment in an emailed statement.

Potential options the Trump administration could consider range from a U.S. ban to the far more damaging possibility of putting Ant on a specially designated national list, which would turn one of China’s crown jewels radioactive for any U.S. company.

Its guideline for Tencent’s instant-messaging app WeChat could offer clues to how the U.S. might handle the payment platforms. It has allowed U.S. companies to continue working with WeChat outside of the U.S.

Institutional investors in America will have less of an impact on the demand-supply equation with Ant as the listings are focused on Hong Kong and Shanghai, Parameswaran said.

Singapore’s sovereign wealth fund GIC Pte plans to invest more than $1 billion in Ant shares, according to people familiar with the matter. State investor Temasek Holdings Pte, China’s $318 billion National Council for Social Security Fund and Saudi Arabia’s Public Investment Fund are among those who’ve been reported to be weighing investments.

Early feedback prompted Ant to decide against locking in cornerstone investors for the Hong Kong leg, confident there would be plenty of takers, people familiar have said.

“There is great demand from clients and global asset managers,” said Joel Ng, an analyst at KGI Securities (Singapore) Pte. “Most of Ant’s business is in China and the rest of Asia so U.S. restrictions will not be a huge deal.”

According to Ant’s IPO prospectus, it gets less than 5% of its revenue from outside China. And only a tiny portion of that is from the U.S., a person familiar has said. Even so, a ban on Ant doing business in the U.S. could curb the potential for growth in the future.

Alipay has also become a less dominant part of Ant’s business in recent years, accounting for just 36% of its revenue in the first half of this year. Its single biggest revenue maker is now its micro-lending platforms.

With a dominant position in China, Ant has been spreading its reach into the rest of Asia, where it is working with digital payment providers in India and Thailand as well as peddling its expertise in wealth management and risk controls.

“The domestic market is quite penetrated already by Ant and WeChat Pay, so the future growth is going to have to come through international expansion,” said Martin Chorzempa, research fellow at the Peterson Institute for International Economics. “The key question for a Chinese fintech is whether it can expand internationally.”

Source: Bloomberg