In A Stupefying Move, China Puts Brakes on Ant Groups’ IPO

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Encountering an unseen pothole may surely cause a wagon to tumble.

In Jack Ma’s case, well, the pothole maybe a dress down of sorts. One for which he may be culpable too.

In a bolt from the blue, Chinese authorities have abruptly suspended Ant Group’s record $37 billion listing, citing a multitude of last-minute shortcomings.

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The well-publicized offering, which was all but sealed and had the go-ahead from authorities, now has its future thrown into doubt, along with its celebrated founder in Jack Ma.

The shocking development has all the makings of hitting the financial technology giant’s growth prospects and undercutting its valuation. While the move was touted by many as a home-grown player on the cusp of making a blockbuster debut in the stock market, the extraordinary turn of events mere days before the fintech juggernaut was to go public has all but deflated all such notions.

Parallels were being drawn towards Ant Group’s public offering with JP Morgan, and a scoop it would have been too, had the IPO not been halted.

Chinese authorities have so far refrained from putting out details about the suspension plug-pull. Their only brusque response has been saying that the highly anticipated debut couldn’t proceed ahead because of there being “significant change” in the regulatory environment.

The warning signs of the suspension first emerged when Ma was summoned to a rare joint meeting with the People’s Bank of China , along with three other top financial regulators. It was here that the Ant executives and Ma were reportedly told his firm would face increased scrutiny and subjected to level playing restrictions on capital and leverage, similar to banks.

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Reading between what has now transpired, Jack Ma has received a rollicking for the casual statements made in a speech at an event last month, which also had the Chinese regulators in attendance, that criticized the financial and regulatory system as stifling innovation. Billionaire Ma, a former English teacher who built Alibaba Group Holding Ltd and affiliate Ant into two of China’s biggest success stories, has seen its promising debut upend on the final straw.

According to some corners, the IPO is expected to be delayed by a period of about six months, with funds set to be returned to the investors in the meantime.

In a decade of continuous progress, Ant, an affiliate of Ma’s Alibaba Group Holding Ltd., has blossomed into one of the world’s largest financial technology companies, having a positive impact on the lives of the ordinary Chinese citizen. Though it has championed China’s economy, the uprise of the entrepreneur with a global footprint that is Ma, and Ant – may well have ruffled China’s state-run lenders and their political benefactors.

There have been ongoing murmurs that China’s regulators have become uncomfortable with banks’ increasing dependence on micro-lenders/ third-party technology platforms such as Ant etc. for underwriting loans. That is, in a pandemic hit economy, where rising defaults and a deterioration in asset quality is a valid fear.

Nonetheless, Tuesday’s developments have left bankers and global investors on the hooks for answers. The decision has doubtlessly met with a swift reaction in the financial market, with Alibaba’s US-listed shares dropping by 8.1%, the biggest drop it has witnessed in close to 6 years. The figures on Hong Kong’s benchmark also fell by 6.5%.

The IPO was set to do justice to the tag of being seen as a ‘pivotal step in the development of the nation’s fast-growing capital markets’. These astounding figures are proof. It had succeeded in pulling in a reported $3 trillion of orders from individual investors for its dual listing in Hong Kong and Shanghai. For the preliminary price consultation of its Shanghai IPO, institutional investors had subscribed for over 76 billion shares, which was a mind-boggling 284 times the initial offering tranche!

Had the timeline not been derailed, the fintech giant’s IPO would have given it a market value of about $315 billion based on filings. Potentially, this would have been bigger than American multinational investment player JP Morgan Chase & Co. and as much as 4 times larger than Goldman Sachs Group Inc.’s valuation on the global market.

While investors are reeling amidst the collision course taken by the Chinese regulatory authorities, the Ant group faces tough times ahead.

Ma would do well to tread carefully to bring this starry IPO back on track, and make substantial changes to its internal organisation and business model to satisfy the authorities going forward.

The offering will be back, but for now, it is Ant Group’s and Ma’s time to reflect.

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