Biggest IPO in History… Cancelled! Alibaba’s Ant Group Flotation is Off!

By Kirsteen Mackay

Nov 05, 2020

Ant Group caught the attention of stock pundit’s everywhere last week when it announced its plans to float on not one, but two Eastern stock exchanges.

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Ant Group caught the attention of stock pundit’s everywhere last week when it announced its plans to float on not one, but two Eastern stock exchanges. One in Shanghai and one in Hong Kong. This was set to be the biggest initial public offering (IPO) the world has ever seen, with a record-breaking $37 billion listing. And it immediately set tongues wagging in anticipation of what it will mean for financial communities around the world. Fast forward to this week and two days before flotation, the dream is all over… for now.

Cloak and dagger tactics

In a clandestine manoeuvre, not unlike that you’d see in a Hollywood movie, Jack Ma, along with his executive buddies at Ant Group, were apparently summoned to a top secret Chinese Communist Party (CCP) meeting. Allegedly to discuss the effect the IPO would have on the existing financial establishment. This involved being interviewed by the People’s Bank of China, and the country’s banking, securities and foreign exchange regulators.

With everything being hush hush, there’s no way for us to know what was actually said, but we can vaguely discern that the government didn’t like the control an IPO would give to Ant Group and basically called the whole thing off.

A blow to Alibaba founder Jack Ma

Jack Ma is the founder and former-CEO of Alibaba Group Holding Ltd (NYSE: BABA | HKEX: 9988), which used to own Ant Group, back when it was known as Ant Financial and Alipay. Alibaba sold it in 2011 but remains a major shareholder with a 33% ownership stake. In response to the initial news of Ant’s major IPO, Alibaba’s share price shot up. Alibaba’s presence in China is much like Amazon’s in the West, and as such, Jack Ma is a very wealthy and influential character in the region.

Nevertheless, he clearly doesn’t have as much power and influence as he might have thought he did. He’s been openly critical of those in charge, and now it seems that’s come back to bite him.

Regulators claim changes to the fintech regulatory environment, along with other major issues, caused the halt. But many analysts believe it’s because Ma recently made public comments openly disagreeing with the way China’s state-owned banks operate. Comments included “Today’s banks still have a pawnshop mentality,” and “We cannot regulate the future with yesterday’s means.

Jack Ma Calls for Replacing “Pawnshop Mentality” of Traditional Banks with Big Data-based Credit System #JackMa #ChineseCreditSystem #ChineseFintech https://t.co/LUbb0fDqt6

— China Banking News (@CBankingEditor) October 26, 2020

The traditional banking system is based on collateral assets. So those consumers looking for a loan must pledge their assets in return. What Ma is proposing, through Ant Group, is a futuristic system that will propel growth. A big data system designed with credit ratings in mind to level the playing field and ensure trust becomes the basis of wealth. China’s existing credit system is archaic and as such collateral is required to insure against losses.

The Chinese government is sending a message that it doesn’t want people getting into unnecessary debt. The regulators see the fintech companies as a sleek way to lure the younger generation into overspending, which results in them rapidly running up high debt. 

The People’s Bank of China, along with China’s banking regulator, released draft regulations targeting online lending. This includes capping loans at either Rmb300,000 ($44,843) or one-third of a borrower’s annual pay, whichever is lower. Ant Group will have to abide by these rules, and they will make lending across provinces more difficult, resulting in a potential hit to its profits.

State affiliated media back the IPO suspension, believing it’s an attempt to safeguard financial stability and reduce risk.

“The move is also an attempt to safeguard financial stability and the interests of investors. If regulators take no action on the major issues, this would mean additional investment risks.” #AntGroupIPO https://t.co/HbQaDpBgVn

— China Plus News (@ChinaPlusNews) November 4, 2020

Investors lose out

Ant Group was hoping to raise just under $34.5 billion, which would have valued it at over £313 billion. The suspension is a big blow to Ma, who stood to double his wealth, bringing him into third place as the world’s richest person, between Bill Gates and Elon Musk. For now he remains in 18th position. But while that may be a minor inconvenience to him, for many investors, the suspension is a bitter disappointment. Institutional investors, retail investors and some major entities involved in the IPO are all left nursing substantial losses. 

China International Capital Corporation Limited (CICC) (HK:3908 | SS:601995), is a key bank in China with a big stake in the listing. As it’s currently the only Chinese bank to be listed in both Hong Kong and Shanghai, it would have earned bigger fees than other banks involved in the deal. The move would also have boosted its prominence in investment banking rankings.

Bankers in the capital markets were also expecting to make a fortune from the deal. After the IPO was suspended, shares in CICC fell over 6.5% while shares in Alibaba fell over 9%.

And it’s not just the banks and institutional investors that stand to lose out. In recent weeks many retail investors have already jumped onboard the IPO train, pledging as much as $3 trillion! They’ve also incurred brokers fees and for some, interest on loans taken out to fund the investments. So, what will happen to their funds in the meantime? It could very well be a waiting game, until a new date for the IPO is pencilled in, during which time bank charges and interest will continue to accrue.

Too big for their boots?

Prior to talk of a flotation Ant Group had been flying high. Largely unaffected by the pandemic, it’s had a great year, with profits up over 70% year-on-year for Q3. It was planning the IPO to enhance its presence on the global stage and to raise money for expanding cross-border payments along with research and development.

Meanwhile, President Xi Jinping has just released his new five-year plan and is positioning to regulate some of the more worrying sides to technological advancement. This is likely to increase regulatory scrutiny of big corporations such as Alibaba, Tencent and Ant Group.

Alibaba, which just reported a 30% rise in year-on-year revenue growth for Q3, and its peer Tencent are titans of industry in China giving them a monopoly on ecommerce and gaming. Both are moving into healthcare making competition, and data privacy concerns even more pressing.

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So, although the Ant Group IPO may well still go ahead in the future, it could be under different terms, meaning profits are likely to be curbed and the bottom line affected. For now, it looks like a 2020 IPO for Ant Group is unlikely. Nevertheless, it may still be a possibility for the future. Definitely one to watch.

At this moment, some small things are happening in our world. And each small change represents hope for the future.#Alipayhope #smallbusinesslove #TechForGood pic.twitter.com/MYw4SV3P03

— Ant Group (@antgroup) November 2, 2020

Important Notice And Disclaimer

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.