To quote Anchorman’s Ron Burgundy: Well, that escalated quickly.
On Tuesday morning (November 3), Ant Group was readying itself to complete the world’s largest ever IPO, a $37 billion dual listing in Hong Kong and Shanghai.
By nightfall, after the markets closed in Asia, and even as Americans turned out in their millions to vote in the most bitterly contested presidential election in a generation, Chinese regulators moved to postpone the sale, leaving the financial technology firm to scout around for explanations and sweep up the wreckage.
The Shanghai Stock Exchange’s shock announcement was straightforward in tone, but raised more questions than it answered.
The bourse said that on Monday, a group of Ant executives including founder Jack Ma, were called in for “supervisory interviews” in Shanghai with four regulatory bodies, including the People’s Bank of China and the China Securities Regulatory Commission – never a good sign.
Discussions, the exchange said, focused on recent changes in “the financial technology regulatory environment”.
Our exchange has decided to postpone the listing of your company
Pointing directly at Ant, it added: “This material event may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements. Our exchange has decided to postpone the listing of your company.”
Scrambled
No one saw this coming. On Tuesday evening, bankers, investors and analysts were scrambling to make sense of it all.
For months, Hangzhou-based Ant seemed destined to complete the world’s largest-ever public offering, with the proceeds split evenly between the two Chinese cities.
The sale was massively oversubscribed, as investors rushed to grab a stake in one of China’s few corporate superstars.
Trading was slated to start in Hong Kong and on Shanghai’s Nasdaq-style Star Market on November 5.
Given the lack of detail immediately forthcoming, investors were left to fill in the blanks for themselves.
Details will surely emerge in the days ahead, but three immediate reasons for the shock delay offer themselves for inspection.
The first, and likely the least of them, involves Ant’s decision in October, in the run up to the share sale, to offer retail investors access to the IPO via an exclusive arrangement on its Alipay mobile payments application.
Analysts called it a conflict of interest – but regulators seemed to shrug it off.
Power
The second is more deep-rooted. Politicians in Beijing are painfully aware of – and wary of – the privately owned group’s power and reach.
Alipay is now reckoned to issue around one-10th of all Chinese non-mortgage consumer loans.
As of the end of June 2020, it had disbursed Rmb1.7 trillion ($255 billion) in consumer credit, in effect making it the country’s largest retail lender.
“There is a fear of it having a quasi-monopoly in consumer loans segment,” says a well-placed source. “Do they have a captive market, given their position with Alibaba? It’s definitely a worry.”
Alibaba, listed in New York and Hong Kong, and by some measures the world’s largest online commerce firm, owns 33% of Ant via its subsidiaries. The tentacles of both firms, in China and in some other markets, are sinuous and pervasive.
Concerns have also arisen about who owns the oceans of public data the company scoops up each year: it is Ant or is it the ruling Party?
Politics
But the third and most visceral explanation for the delay is political.
At a financial forum in China in the last week of October, Ma called the Basel Accords “an old people’s club” and railed against restrictive international financial regulation. Why “use yesterday’s methods to regulate the future”, he wailed.
But it was his decision to level his gaze at China’s state-run banks that really caught the eye.
Ma acerbically denounced their “pawnshop mentality”, framing Ant as the good guy who worked hard to fund the ambitions of individuals and small firms.
There were people who took offence to his comments
“It rankled,” said one banker, pointing to the reaction in Shanghai and Beijing. “There were people who took offence to his comments.”
There’s a simple rule in Beijing: Whoever you are, never get bigger than the Party.
Maybe Ma did. Perhaps there are other explanations. Some might even be true.
But one thing is for sure. The decision to postpone the public offering – and potentially to derail it for good – so very close to the listing date is good news for no one.
For Ant, it’s a nightmare that has only just begun.
