Chinese Authorities Stop Ant Group IPO, Stunning Observers

Ant Group’s initial public offering was unexpectedly halted by Chinese regulators on Tuesday, just 48 hours before it was to begin. The suspension of the IPO, expected to give the Alibaba-affiliated company a market cap valued at over $300 billion, came after three days of political intrigue. At The New York Times, Raymond Zhong and Cao Li reported on the showdown between Jack Ma’s powerful fintech company and Chinese regulators:

In a late-evening announcement that stunned China, the Shanghai Stock Exchange slammed the brakes on Ant’s initial public offering, which was set to be the biggest stock debut in history with investors on multiple continents and at least $34 billion in proceeds.

The stock exchange’s notice to Ant said that the company’s proposed offering might no longer meet the requirements for listing after Chinese regulators had summoned company executives, including , the co-founder of the e-commerce titan and Ant’s controlling shareholder, for a meeting on Monday.

Neither the regulators nor Ant have said in detail what was discussed at the meeting. But the timing of the conversation, mere days before Ant’s shares were expected to begin trading concurrently in Shanghai and Hong Kong, suggested discord with the company or with Mr. Ma, who spun Ant out of Alibaba in 2011. [Source]

On Saturday October 24 at the Bund Summit, a conference in Shanghai, Jack Ma gave an unfiltered speech directly criticizing Chinese financial regulators, mere hours after Politburo Standing Committee member Wang Qishan said, “There should be a fine balance between encouraging financial innovation [and] building regulatory capacity [….] Among safety, liquidity, and profitability – the three principles of finance – safety always comes first.” At NPR, Emily Feng reported on Ma’s disdain for China’s financial regulators:

The halt of Ant’s IPO and after he made disparaging comments about China’s regulatory environment and state banks.

“China does not have a systemic financial risk problem. Chinese finance basically does not carry risk; rather, the risk comes from lacking a system,” he told those gathered for a finance conference in Shanghai. “China today needs policy experts, not paper pushers.” In his comments, Ma also dismissed Chinese banks as “pawnshops” giving loans out to companies “that do not need money. As a result, many good companies have turned into bad companies.” [Source]

On Monday November 2, Chinese regulators detailed new regulations on micro-lending, a core portion of Ali Group’s business. Two Ant Group products, Huabei and Jiebei, “Just Spend” and “Just Lend,” offer consumers loans valued between $7 and $10,000. Last year, Ant Technology (formerly Ant Financial) worked with 100 banks to deliver over $300 billion worth of loans to both consumers and businesses. While dramatically expanding Chinese consumers’ access to credit, Chinese leaders were worried about credit’s impact on social stability. Guo Wuping, a Chinese bank regulator, said, “fintech companies often lured young people into overspending so that ‘some people in low income groups and young people fall deep into debt traps’.”

Later that same day, four Chinese regulators summoned Jack Ma and two other Ant Group executives for an “interview — yuetan — [which] generally indicates a dressing down by authorities.” Participants did not disclose details about the meeting, but Bloomberg reported that “Ant’s leadership team was told the company will face increased scrutiny and be subject to restrictions on capital and leverage similar to banks.”

The following day, November 3, the Shanghai and Hong Kong stock exchanges both announced that they had postponed Ant Group’s listing. At CNN, Hanna Ziady and Sherisse Pham reported on the unprecedented cancellation of the multi-billion dollar IPO:

This is the first time that Chinese regulators have taken such drastic actions on the eve of a large IPO, senior geotechnology analyst at Eurasia Group Xiaomeng Lu told CNN Business.

“Jack Ma’s aggressive comments last weekend exacerbate the brewing conflict between large Chinese tech companies and powerful regulators,” Lu said in emailed comments. “Ant is likely to adjust its IPO valuation as a result of this intervention and delay its launch date.”

[…] While it’s not yet clear exactly why the Ant Group IPO was suspended, it could be an attempt by Beijing to remind Ma “who calls the shots,” Clark told CNN Business on Tuesday. Still, such a dramatic move so close to the listing date is surprising because it could damage Beijing’s drive to develop its capital markets, he added. [Source]

Was the suspension a political move aimed at Jack Ma? A result of legitimate regulatory concern? A mixture of both? In an opinion piece at Bloomberg, Shuli Ren weighed in:

What Ma said was a bit sensational, perhaps. But he was right. China’s bankers are so averse to extending credit to smaller borrowers that Beijing redefined “inclusive financing” to make its banks’ loan books look prettier. In fact, it’s been so difficult for small businesses to obtain bank credit in the last decade that they have become hard wired not to invest for the future. Here’s the latest tidbit of evidence: In the third quarter, even as China’s economy recovered and 86% of 300 smaller manufacturers CLSA spoke to became profitable, most remained wary. A record-breaking 59% of their capital expenses went into mere “regular maintenance,” the brokerage found.

Ma’s words were blunt, but these phrases, such as “pawn shops,” are not his concoctions. Bureaucrats at the People’s Bank of China, for instance, had used the same words themselves. So why is Ma being singled out?

Could it be that Ant is too profitable and is now being targeted? Ant is raising at least $34.5 billion in an IPO that attracted more than $3 trillion of retail orders. Meanwhile, regional banks are still in the doghouse, struggling and sometimes being restructured because they lack capital buffers. [Source]

Prominent Chinese blogger Wen Yunchao wrote in a tweet that the suspension was intended as a reminder that Ma Yun was not a member of the Zhao family, internet-speak for someone who wields real, Party-backed, power. Many echoed similar sentiments on Twitter:

users, who only a day before had invented a new tongue-in-cheek chengyu about Jack Ma, quickly took to mocking him by sharing clips of Gong Shou Dao, a 2017 kung fu movie in which he starred:

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