Ant's Blockbuster IPO – What Went Wrong?

To end a frenetic year for global equity markets, Ant Group’s Initial Public Offering (IPO) scheduled for November 5 was primed to shatter records. Aiming to raise over $34 billion USD in a dual listing, this IPO would have etched the Fintech giant’s name into the history books as the largest public listing on record. However, in a shocking turn of events, Chinese regulators called a sudden halt to the IPO only days before the listing, sending investors into a frenzy. The mysterious disappearance of company founder Jack Ma and an antitrust investigation on parent company Alibaba soon followed, rendering Ant’s future a murky pool of uncertainty. [1]

Company Background

Ant Group is a leading financial technology group best known as the owner of the digital payment platform Alipay, which since 2013 has been the world’s largest mobile payment platform. The platform has over one billion users and a total payment volume of ¥118 trillion CNY ($18.2 trillion USD). [2]

Alipay was created in 2004 by Alibaba as a digital payment service to complement its e-commerce platform Taobao. After a rebranding process which saw the emergence of Ant Group as the sole owner of Alipay in 2014, the young affiliate has seen unprecedented growth in the past few years. Alipay now offers a range of services which extend far beyond the provision of digital payment. For example, it allows users to easily invest in mutual funds with its mobile application and also facilitates small-credit loans to consumers and small businesses. As the company’s services continued to expand, Ant group has arguably been the biggest factor driving the digitisation of China’s financial infrastructure. [3]

Ant group currently employs over 16,000 people and recorded annual revenue of ¥120 trillion CNY ($18.5 billion USD) in 2019. More impressive is the company’s wide profit margin of approximately 30%, which is unusual for a relatively young firm. Ant recorded a net profit of ¥21.2 billion CNY ($3 billion USD) from revenue of ¥72.5 billion CNY ($10.5 billion USD). As a result, Ant was valued at over $300 billion USD in the run-up towards its listing, instantly placing the firm within the same conversation as technology juggernauts such as Nvidia and Samsung, valued at $310 billion USD and $339 billion USD respectively.  [4]

Blockbuster IPO

Ant’s blockbuster initial listing had been heavily anticipated for years since the company took the financial technology industry by storm. The capital raised from the issuance of shares would be used to extend Alipay’s service to cover a greater variety of retail stores and facilitate the company’s expansion on a global scale. [5]

At long last, the financial services provider announced that it was beginning the process of a dual listing on both the Hong Kong Stock Exchange and Shanghai Stock Exchange in July 2020. Ant aimed to raise $17.2 billion USD from each listing, trading at ¥68.8 CNY and $80 HKD per share in the respective cities. The decision to list in domestic equity markets was consistent with a recent trend amongst Chinese technology firms to raise funds close to home due to the ongoing geopolitical rivalry between China and the USA. [6]

Excitement surrounding the IPO announcement invigorated institutional and retail investors alike. In Hong Kong, shares were oversubscribed by institutional investors within an hour of the order book opening. Ant Group also adopted an unprecedented approach to raising funds from retail investors by encouraging individuals to invest in specially selected mutual funds on the Alipay mobile app. These funds could invest up to 10% of their assets into Ant but required investors to commit their investments for a period of 18 months. Overall, the buzz created by Ant’s IPO raised a total of ¥60 billion CNY ($9.3 billion USD) for mutual funds in the space of one week, and the value of individual investor orders totalled more than $2.8 trillion USD. [7]

A Screeching Halt

Two days before shares were scheduled to begin trading, the Shanghai Stock Exchange suspended Ant’s IPO, citing “a changing regulatory environment”. The Hong Kong Stock Exchange soon followed, leaving global investors shell-shocked. [8]

The turnaround was devastating considering the magnitude of the listing, but it was symptomatic of financial regulators’ ongoing uneasiness towards Ant’s rapid ascent. The primary point of contention was that while Ant ties to market itself as a technology firm – and hence wishes to be regulated like a technology firm – it remains a significant cog within the country’s financial system. For example, Ant manages Yu’e Bao, the country’s largest money-market fund which holds investments of more than one-third of China’s population. Ant is able to use Alipay’s intuitive platform to encourage individuals to invest their spare cash into the fund, the growth of which has raised eyebrows amongst the country’s regulatory agencies. [9]

One of the most controversial features of the Ant’s digital platform is its ability to easily provide short-term credit to individuals and small businesses. The funds do not originate from the company’s own balance sheet – instead, Ant has partnered with commercial banks to provide capital and receives a commission for facilitating transactions. As a result, traditional lenders are outcompeted, leading to concerns regarding the relative regulatory laxity under which Ant had previously operated – under China’s stringent regulations on financial institutions, Ant as a financial-holding company should fund at least 30% of its loans. [10]

Jack Ma, the CEO and founder of Ant, had fired back at regulators in the face of mounting scrutiny. At a public forum in Shanghai held in October 2020, Mr. Ma spoke out against China’s regulatory landscape. “We cannot regulate the future with yesterday’s means,” said the richest man in China, “There’s no systemic financial risks in China because there’s no financial system in China. The risks are a lack of systems”. [11]

These comments held true to Ma’s commitment towards innovation but made powerful enemies in the process. Chinese President, Xi Jinping was infuriated by Ma’s comments at the Shanghai forum, and hence it was reported that he had personally ordered regulators to clamp down on the Fintech giant. This is not the first time Xi’s regime had initiated crackdowns on the country’s large private conglomerates – Dalian Wana and Anbang Insurance Group had both been the target of scrutiny from regulators since Xi rose to power in 2012.  [12]

In an eerie turn of events, Jack Ma mysteriously disappeared from the public eye after Ant’s IPO plans were scrapped. His first public appearance for months in January 2021 brought relief to his many followers who had questioned his safety. [13]

From Hero to Zero

The ongoing battle between Ant and regulators mirrors a broader ideological struggle between Ma’s vision of market fluidity and China’s existing model of state-led capitalism. This was not a battle that China could afford to lose, and Ma’s comments at the Shanghai forum were simply the last straw. As a result, Beijing flexed its muscles and called a halt to the largest IPO on record.

Ant and parent company Alibaba have been crucial players in the digital transformation of China’s economy and are undoubtedly one of the driving forces behind China’s global ascent. While Ma’s contributions have not gone unnoticed by President Xi’s regime, which places emphasis on technological expansion as a key pillar of growth, Beijing cannot allow for unchecked power within the heart of its financial system. It has never been clearer that Beijing will not tolerate any form of dissent, even if it means clamping shackles on the expansion of its most prized innovator.

Ant Group will aim to relist as soon as possible while complying with a more stringent set of regulations. However, there are doubts concerning the firm’s ability to go public as early as 2021, and the prospect of its valuation reaching the lofty heights previously attained is bleak. [14]