Chinese tech firm Ant Group’s IPO is suddenly on hold in both Shanghai and Hong Kong, which has led to a sell-off of Alibaba shares. Ant had run into regulatory issues with the Chinese government.
Ant’s IPO was about to become among the largest in history. It was estimated that it would raise US$ 34.5 billion in its dual-listing share sale. Ant’s retail demand for its shares at IPO reached nearly US$ 3 trillion in mainland China alone.
Had the IPO come through, Ant would have sported a possible market valuation of more than US$ 300 billion at its IPO price, becoming one of the most valuable companies in the world.
What is the Ant Financial Group?
In 2004, Jack Ma’s Alibaba Group started to build out a super-fast payments platform, which it said would enable its users to make payments easily, Alipay. The third-party digital payment app gained millions of users in a very short time. Alipay claims to have more than a billion users, with over 730 million of them active on a monthly basis. To capitalize on the various offerings of Alipay, Jack Ma brought the App under a company called Ant Financial, formally established in October 2014. The company was later renamed Ant Group.
Ant Group aims to create the infrastructure and platform to support the digital transformation of the service industry. Their innovative payment solution bridged the trust gap, facilitated online transactions and underpinned the development of e-commerce in China. It has expanded its service offerings through technology and innovation to enable digital finance for consumers and businesses.
Ant Group believes that its new technologies, including its blockchain solution called the AntChain, will continue to strengthen the foundation of trust in this digital era.
Why was the Ant Group IPO suspended?
The Ant Group presents itself as a tech company, instead of a fintech company. However, the financial regulators in China have suggested that the company is under their umbrella. Because it identifies as a tech company, Ant benefits from the far more bountiful valuations tech firms can get rather than the ones usually allotted for financial institutions.
Moreover, this year Ant changed its name to Ant Financial Group, making it unlikely for regulators to give it a pass. Jack Ma was also summoned for an interview over the IPO by the People’s Bank of China.
Lending is a very tightly regulated state subject in China. Therefore, the idea of third-party technology-driven apps such as Alipay venturing into the consumer lending business is not something that the government and regulators appreciate.
In October, Jack Ma had also criticized China’s state machinery’s financial regulations calling them outdated. His comments must have displeased the top leaders of the Communist regime, who have expressed concerns about how banks have tied up with micro-lenders such as Alipay.
The IPO was first suspended by the Shanghai stock exchange, which prompted the group to suspend the Hong Kong leg of the listing. The suspension came after a meeting between the regulators and Ant Group’s top executives.
The listing was suspended as there had been a “significant change” in the regulations related to online lending in China. China also published new norms for online lenders and micro-lending by apps such as Alipay.
What’s Next?
In order to please the regulatory authorities, Ant Group will have to change its working practices if it wishes to float a new IPO. The company will have to become more transparent on its disclosures and other requirements such as controlling the amount of micro-lending it does per month.
The Ant Group has disclosed that it will stay put on its plans to float an IPO and will seek advice from the older Alibaba Group on how to negotiate and navigate through the tough regulations imposed on institutional lending in the Chinese market.
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