Journalists who know when a story has immediate and staying power often say it has ‘legs’. With that in mind, the decision in November by China to scrap the initial public offering of Ant Group is a tale that looks set to run and run.
The debate about the financial technology firm’s Shanghai-Hong Kong listing, set to break all records until it was quashed at almost the last possible moment, was reignited on February 16.
That day, The Wall Street Journal cited a new reason the deal was scrapped: because of the political identities of some of the people who were set to profit from it most.
The story points to a central government investigation in the lead-up to the stock offering. Beneath a complex web of investment firms, the probe discovered a host of wealthy and well-connected tycoons.
Connections
Many were financially or personally connected to Jack Ma, the co-founder of Ant Group and Alibaba.
Some of the names were already known. Buyout firm Boyu Capital, an early investor in Ant, played a key role in its $14 billion private fundraising in 2018. One of its partners is Jiang Zhicheng, the grandson of former president Jiang Zemin, many of whose allies were purged in current leader Xi Jinping’s anti-corruption drive.
Others were news to most readers. One was Beijing Zhaode, an investment group controlled by Li Botan.
Li is the son-in-law of Jia Qinglin, a veteran power broker and ally of the former president. He and the younger Jiang are part of the ‘Shanghai faction’, an urban east coast clique that rose to power in the 1990s and is now led by Li.
Also on the list are Guo Guangchang and Lu Zhiqiang, two of China’s richest men, and Wang Xiaoxing, another property tycoon, who made her money from peer-to-peer lending until Beijing cracked down on it.
The story is well-sourced, but it also feels like spin: a classic case of those in the know trying to get their point across to a global audience.
The story is well-sourced, but it also feels like spin: a classic case of those in the know trying to get their point across to a global audience.
And why not? China’s financial technocrats are a highly capable bunch. They are tasked with, among other things, ensuring the country’s financial and capital markets are sensible places for investors to put their money to work.
Whether extending new licences to foreign lenders or adopting a registration system for onshore IPOs, these rule-implementers pride themselves on making decisions based on good, logical, long-term reasons.
In that sense, the decision to torpedo Ant’s $34.4 billion stock sale, less than two days before its shares were set to start trading, looks acutely odd.
At the time, it suggested uncertainty and even panic, not sure-footed adherence to procedure.
In the months prior to the listing date, Beijing drew up rules to curb the lending activities of technology firms that act like financial institutions. It had the likes of Ant, which made a lot of money by pulling in capital from banks and on-lending it to individuals and small firms, very much in mind.
Regulators knew the listing vehicle was vastly overvalued. Had they not acted to nix it, Ant’s stock price would surely have slumped as the reality of the new rules dawned on investors.
So, the question is – why did they wait until the last minute to act?
Motivation
For months, the message emanating from Beijing was that the sale was scuppered for purely regulatory reasons.
This week’s story suggests it was motivated less by financial logic than by political expedience.
“It gives credence to the political side of things,” says a well-informed source. “Now, people can say: ‘Ah, they cancelled it because one faction didn’t like another faction.’”
In truth, no one comes out of this epochal moment in Chinese financial history well.
Not the state, which gave the impression of seeking to hobble one of China’s most innovative and visible private firms. Not its financial technocrats, some of them now clearly keen to put their own public spin on events – and, notes one banker, “to position their work as consistent with Xi’s political objectives”.
And certainly not Ant’s co-founder Ma, who, at a public forum just weeks before the listing date, ridiculed state banks and accused regulators of smothering innovation. He’s rarely been seen in public since making a speech that, notes one banker, “was bad at the time and looks even worse in hindsight.”
The full truth of what happened in November may never be known. There’s probably a book in it somewhere. Perhaps even a Netflix movie. There will surely be more leaks, filled with spin from people ‘familiar with events’. When – if – he is allowed to appear in public again on his own terms, Ma may even have his own take on what happened.
Whether or not you believe any of it is up to you.
