Suspension of Ant Group’s historic IPO

Chinese billionaire Jack Ma’s Ant Group was set for a record-breaking $37 billion initial public offering until China’s government unexpectedly halted it on 3 November. The listing of what was to be the largest IPO in global history was suspended on the Shanghai and Hong Kong stock exchanges a day after government regulators met with Ma and two senior Ant executives in a closed-door meeting. The digital payment giant was primed for a dual listing on both exchanges on 5 November, and it would have been valued at $316bn, with its IPO breaking oil behemoth Saudi Aramco’s record of $29.4bn in 2019.

During the 2 November meeting, regulators reportedly told Ant’s founder and majority shareholder Ma, CEO Simon Hu, and executive chairman Eric Jing that the financial technology company would face tighter government scrutiny. The China Banking and Insurance Regulatory Commission issued new draft rules the same day for online microfinance businesses like Ma’s, including higher capital requirements for loans and stricter controls on lending across provincial lines. The Shanghai Stock Exchange appeared to take these rules into consideration, releasing a statement saying that recent changes in the fin-tech regulatory environment meant Ant may no longer meet the listing requirements. The new rules have caused concern in the wider industry, with fears that they might cause the entire microfinance industry to shrink.

The financial services giant challenged the nation’s dominant banking institutions, which had been criticised by Ma as ill-equipped to serve the needs of the people

Ant had received over $3 trillion in orders from retail investors across its dual listings. The financial services company released a statement the same day as the Shanghai exchange statement, announcing the suspension of its Hong Kong listing and saying that all monies so far paid into the company would be refunded soon. Shares of Ma’s Alibaba, from which Ant was spun-off and which owns a third of Ant, dropped 8% after the news, which caused Ma’s own fortune to fall by $3bn. Shares of state-owned banks in China, such as Bank of China and ICBC, rose sharply after the news.

The suspension sent shock waves across the financial world, and it is another example of Beijing’s tight control over the world’s second largest economy. Ant brought a revolutionary and reliable payments platform through its Alipay app directly to 730 million users across China, from individual smartphones to small businesses, enabling them to make daily transactions and take out small loans conveniently. The financial services giant challenged the nation’s dominant banking institutions, which had been criticised by Ma as ill-equipped to serve the needs of the people. It appears Beijing could not tolerate its banks being threatened like that. Beijing maintains that the suspension was necessary. Wang Wenbin, China’s foreign ministry spokesman, said that it was designed to “better maintain the stability of the capital markets and to protect investors’ interests.”

China’s President Xi Jinping personally blocked Ant’s IPO, having ordered regulators to investigate and effectively shut it down. The Chinese leader has shown disdain for large, rich, influential private companies which he thinks can threaten his rule. Beijing halting Ant’s lucrative listing appears to be a personal show of force towards Ma for his public denouncement of the Chinese government. Ma, known for being outspoken in a country that punishes dissent, had sharply rebuked China’s governance in a speech on 24 October, when he criticised state regulators and called out state-owned banks for having a “pawnshop” mentality as they demand collateral and guarantees to extend credit.

Ant is a whole new concept in terms of banking and almost could replace or threaten the banking system in China

This may have been the final nail in the coffin of the fin-tech billionaire’s dream after years of uneasy relations with the government. “The speech by Jack Ma in Shanghai suggests he wanted to openly challenge the regulator which is unacceptable,” said a senior executive at a major state-owned Chinese bank. “That prompted the regulator to go ahead and announce the rules.” As reported by the New York Times, an article in the Economic Daily, an official Chinese Communist Party newspaper, applauded the decision to suspend Ant’s IPO as being in the best interest of investors. “Every market participant must respect and revere the rules, no exceptions,” the article said.

Conversely, there seems to be some support for China’s controversial decision. Ray Dalio, the billionaire founder of Bridgewater Associates, the world’s largest hedge fund, said that the suspension was reasonable and that there was a risk of being too lax on innovation. “Ant is a whole new concept in terms of banking, and almost could replace or threaten the banking system in China. And it hasn’t yet been properly established in terms of regulatory review and the like,” he said.