Ant Group’s Race to world’s biggest IPO Abruptly Derailed, Regulator Raises Red Flag

Summary

  • The world's largest IPO in Shanghai and Hong Kong by financial technology company Ant Group is suspended.
  • The news came after Ant Group's Monday meeting with regulators. Chinese authorities have cited significant issues behind the eleventh-hour suspension.
  • Media reports are linking the suspended IPO with Mr Ma's comment made at a fintech conference last month where he had compared the traditional banks with 'pawnshops'.
  • The company came under increased scrutiny and tighter regulations.

What was supposed to be the world’s biggest Initial Public Offering (IPO) by financial technology company Ant Group, came to an abrupt halt in Shanghai and Hong Kong when Chinese regulators waved a red flag, derailing a record USD 34.5 billion IPO.

In a dramatic turn of events, the Shanghai stock exchange, on 3 November 2020, announced that it had suspended the company's IPO, due to regulatory changes in Ant’s industry and the company’s inability to meet closure requirements. The Hong Kong exchange listing was also suspended a few minutes later.

The background

In October, Ant Group had floated a dual listing IPO on Shanghai stock exchange and Hong Kong exchange. The company received an overwhelming response for the IPO, especially from the retail investor community.  Monday’s news comes as a damp squib for the retail investors.

Ant Group is backed by Jack Ma, the billionaire founder of e-commerce platform Alibaba. Ant operates Alipay, the world’s biggest fintech company.

Mr Ma's comment last month at a fintech conference an issue?

It seems that the revolutionary company's approach has somehow irked the Chinese authorities. Consequently, they called Mr Ma for a discussion. Now, media reports are linking this meeting with Mr Ma's comment made at a fintech conference last month where he had compared the traditional banks to 'pawn shops' while praising the merits of the digital banking system. He had also added that future lending decisions should not be based on collateral but data.

Good read: Are Amazon, Tesla, and Alibaba the growth stocks in a slower economic growth world?

Though China is hugely supportive of its companies, these comments seem to have set off alarm bells for officials. Moreover, the fintech company collects lots of data from its customers; even the Chinese government does not have immediate access to these data unless they ask for it. So, the method of its functioning is not in sync with China's controlling authorities. Unlike other countries, Beijing expects a degree of control over Chinese companies.

On 04 November 2020, Alibaba shares were down by over 9% in trade on Hong Kong exchange, wiping out USD 70 billion.  Reacting to the news, Alibaba spokesperson stated that the company would be proactive in supporting Ant Group to embrace the evolving regulatory framework. 

Interesting read: Water Bottle Maker, Zhong Shanshan Is The New Chinese Billionaire 

Ant's shares were expected to start trade in Hong Kong and Shanghai on Thursday, and retail investors in Shanghai placed bids for nearly USD 3 trillion worth of shares. However, as the company expanded the range of financial technology services, it came under increased scrutiny and tighter regulation. The new rules include caps on lending rates and on the use of asset-backed securities to fund licensing requirements, consumer loans, and new capital.

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