It was going to be the biggest public share sale ever, the most important international debut of China’s Ant Group that would bolster the financial-tech company and the prestige of the Shanghai and Hong Kong stock exchanges where it was poised to list.
Until, that is, China’s government stopped Ant’s initial public offering’s march in its tracks.
Officially, Ant Group’s $35bn IPO is on hold until it can comply with Chinese government regulations that went into effect on November 1, including fixing capital shortfalls.
Unofficially, analysts say the postponement is a serious muscle flex by Chinese President Xi Jinping over Ant’s founder, Jack Ma, who is the country’s second-wealthiest man. The suspension came days after Ma made a speech at odds with the Chinese Communist Party’s handling of the economy.
As the fallout continues, investors are eyeing what Ant’s fate means for international businesses in China’s authoritarian landscape. Here is what you need to know.
Psst, this is embarrassing, but what exactly is Ant Group?
Ant is the financial arm of e-commerce giant Alibaba and started out in 2004 as the site’s way to process payments. Ant’s Alipay app now has more than 730 million monthly users in China who use it to pay bills, shop and send money to friends. Ant’s services also include insurance, loans and asset management.
So it is a financial services company?
That is part of the debate. Ma has argued that Ant is more of a “techfin” rather than a “fintech” outfit. The company recently changed its name from Ant Financial to Ant Group.
Techfin, fintech – come again?
Ant claims it is a technology company that works with financial institutions, which means it would enjoy fewer regulations and more freedom under Chinese laws.
But Chinese financial regulators say Ant’s business model of connecting lenders and borrowers falls squarely under their oversight. And that is where Ant’s IPO train started to come off the tracks.
So what happened?
Ant was initially marching towards its November 5 IPO and attracting a lot of investors in the process – it had some $3 trillion in orders for its dual listing in Hong Kong and Shanghai. Ant’s IPO was expected to even eclipse the $29bn IPO for Saudi Arabia’s oil giant Aramco, so far the world’s biggest public share sale. But then Ma, a 56-year-old former English teacher, got called into the principal’s office.
During a speech at the Bund conference in Shanghai on October 24, Ma opined that the world “only focuses on risk control, not on development, and rarely do they consider opportunities for young people and developing countries.”
Ma expressed that financial regulators seem a kind of club for the elderly who want to play it too safe, something that is not good for “youth” economies like China’s.
That doesn’t sound so bad.
Ma’s comments came just hours after the conference keynote’s speaker, Chinese Vice President Wang Qishan, struck a more cautious note, saying that China would “keep away from the wrongful paths of excessive speculation, self-reinforcing cycles of financial bubbles and Ponzi schemes.”
Ma was called to Beijing for a meeting with government officials on November 2. The next day, Ant’s listing was pulled from the Shanghai stock exchange.
Ouch. What was the official reason?
Chinese regulators called the company’s leadership in for “supervisory interviews by relevant departments,” the Shanghai stock exchange said in a statement announcing Ant’s IPO suspension, which also mentioned “changes in the financial technology regulatory environment and other major issues.”
What did the whole thing cost Ma?
Ma’s stake in Alibaba Group Holding, which owns a chunk of Ant, fell about $3bn after the IPO was postponed, Bloomberg reported. The company is now in the process of implementing the guidelines from that Beijing meeting so it can get back out there.
But the China Banking and Insurance Regulatory Commission may also impose new rules on Ant’s credit platforms, Bloomberg reported, citing sources familiar with the matter, which may mean Ma’s headaches are far from over.
OK, so for now, Ant goes marching on. But is there lasting fallout?
Maybe. China’s government seems to be sending a clear signal that it is not afraid to step in and cancel the party when a private company does not play by its rules. And that could spook investors who are keen to get in on the world’s second-largest economy – but are not eager to toe the Communist Party line.