China’s sudden suspension of Ant Group’s record $37 billion listing is likely to postpone rather than kill its chances of a stock market debut though the financial technology giant’s valuation and growth prospects are likely to be affected.
Analysts and investors see the last-minute ambush by Chinese regulators as an effort to reduce Ant founder Jack Ma and his empire of financial services down a bit, but they expect it to eventually list in Hong Kong and Shanghai as expected.
“Ant’s business is likely to be restricted by new financial regulations. As a result, the relaunched IPO price will most likely be lowered,” they said.
A tech company?
Rather than a financial giant, Ant has tried to present itself as a technology company and its valuation so far has benefited from its tech focus.
But parts of its sprawling empire, including its lucrative online lending business that contributed almost 40 percent of its total revenue in the first half of the year, have made the Chinese regulators uncomfortable.
Online lenders in China will have to continue paying more of their own loan capital under draft rules published recently, which is expected to damage Ant’s business model. Analysts also said that Ant’s co-lending subsidiaries like Huabei and Jiebei will no longer be authorized to sell wealth management products.
The China Securities Regulatory Commission (CSRC) said the recent regulatory changes could have a “major impact” on the business structure and profit model of Ant. The suspension of the initial public offering (IPO) was a responsible move for investors and markets alike, it said.
Serious blow to Jack Ma
The suspension was seen as a shocking blow to billionaire Ma, a former English teacher who created two of China’s biggest success stories with eCommerce giant Alibaba Group Holding Ltd and its affiliate Ant.
The net worth of Mr. Ma was set to almost double to $59 billion following the IPO, based on the value of Ant’s shares. Instead, after shares in Alibaba, in which he has a stake of 4.8 percent, his estimated wealth dropped $3 billion, dropping 8.1 percent in New York.
The decision of the Shanghai stock exchange to suspend the IPO followed a meeting between the financial regulators of China and executives of Ant, including Mr. Ma, who were informed that the online lending business of the company would face tighter scrutiny.
The exact nature of the concerns of the regulators and just how long the suspension will last is not clear. The meeting was described by the Shanghai Bourse as a material event that could lead to the disqualification of Ant from listing.
Ant said in a recent filing that it would maintain close communication on the progress of its IPO and listing with the regulatory authorities and the Hong Kong and Shanghai bourses and would disclose details in a timely manner.
Analysts said that Mr. Ma’s public criticism of financial regulations last month as stifling innovation had put him on a collision course with regulators in China.
However, regulators have also been uncomfortable with banks increasingly using micro-lenders or third-party technology platforms such as Ant for loan subscription. They feared that defaults could increase and the quality of loans could deteriorate in an economy affected by the coronavirus pandemic.
After regulators suddenly postponed what would have been the world’s biggest stock market debut investors, who placed bids worth a record $3 trillion in Ant, which is equal to Britain’s annual economic performance, were startled.
Analysts predict that Ant would almost definitely return to the market, but in order to meet regulatory requirements, it will have to make major improvements to its internal structure and business model.
“The IPO will come back but timing is the question. And valuation will certainly be lower,” they said.
The listing had been set to value Ant at $315 billion, which would have made it Asia’s fifth most valuable firm and worth more than the Industrial and Commercial Bank of China, the world’s biggest bank by assets.