China has yet again proven its control over its domestic corporate world. Beijing has shown its voracity and strength to tech pioneer Jack Ma along with other billionaire businessmen to manifest who is the real player.
It was Tuesday when the market regulators in China stupefied the investors and corporates by halting the highly anticipated initial public offer by Ant Group. This was just a few days before the shares of the tech giant were to begin being traded in Shanghai and Hong Kong. As the biggest ever share sale in history, Jack Ma’s financial firm was all geared up to raise as much as $37 billion in the offer. If this IPO had not been temporarily canceled or halted by the regulatory authorities it would have beaten the last year’s $29.4 billion listings of Saudi Aramco.
Following the conversation and talks between Jack and Ant Group executives, and the Chinese Central bank and other officials, the Shanghai Stock Exchange issued a statement that it had delayed or postponed the initial public offer of the Ant Group due to some “major issues” that may hamper the listing conditions and other disclosure requirements.
Wang Wenbin, the spokesperson for China’s Ministry of Foreign Affairs, said in an interview that the Shanghai bourse is just taking care of its responsibility of self-regulation and that this decision is taken to better safeguard the capital market stability as well as to protect investors’ rights and interests.
What is the Ant Group?
The history of Ant Group dates back to the year 2004 when the Alibaba group, owned by Jack Ma, started to create an extremely nimble payments platform. The Alibaba Group, which owns Alibaba- China’s largest online retail platform, said that it wanted its users to make payments easily and on time via the new app.
Alipay, the third-party digital payment app broke all records and became popular in a very short span of time. It surpassed all expectations by attracting millions of users just a few months after its release. Currently, Alipay has more than a billion users. Out of these billion users, as many as 730 million are active on a monthly basis. Therefore, to capitalize on the opportunity and growth prospect laid down by Alipay, Jack Ma spun it off and brought it under Ant Financial, a new company that was later re-christened as the Ant Group.
Why did the regulators in Shanghai and Hong Kong suspend the IPO?
China has extremely stringent regulations when it comes to lending as the state subject. The authorities there become uncomfortable with the idea of any other third-party technology venturing into the consumer lending business that is majorly dominated by the state-run banks. Tech-driven apps such as Alipay threaten their power.
In October only, Jack Ma chided the regulatory practices in China by calling them “outdated and cumbersome”. He also said that these practices and complicated stifled the potential innovation opportunities in the financial sector. And, needless to say, these comments hurt the sentiments of the topmost leaders of the Communist regime.
The suspension done after the deliberative meeting between Ma and the Chinese officials seems to be more like an attack or personal revenge than a regulatory procedure. Shanghai stock exchange, called the STAR market, firstly suspended the initial public offer following which the Ant group suspended the Hong Kong leg of the listing.
What lies ahead for the company?
This little shock by the Chinese regulators has stressed out the investors. On Tuesday, the shares of the Alibaba Group dropped as much as 8% in New York. This drop in shares caused a loss of over $68 billion to the market value of Jack Ma’s co-founded firm.
Duncan Clark, author of “Alibaba: The House that Jack Ma Built” and founder of investment advisory firm BDA China said, “There’s a saying in China: ‘The tallest nail gets hammered down, and it would seem that Jack just got hammered by the Chinese government.”
At a conference in Shanghai, Ma reacted to this news by stating that we need to build a healthy financial system, not systematic financial risks because to innovate without risks is tantamount to kill innovation.
As a reply to this, Jeffrey Halley, senior market analyst for the Asia Pacific at Oanda wrote in a note that the comments by Jack do not go with the quantum of power Beijing holds. He said, “There’s only one big boss in China, and it’s not Jack Ma.”
After all that Chinese authorities have done to assert and reassert their power and influence over the business world and private companies, it is highly uncertain, foggy, and unclear that whether Beijing is doing all this to tilt the balance of power back to state-owned banks, or the regulators are genuinely concerned and uncomfortable about lending practices followed by Ant Group.
The Banking and Insurance Regulatory Commission of China has summoned Ma and his team. It also proposed new rules and regulations for online lenders to abide by. This would mean that Ma would now have to keep more money for giving out loans, which would, in turn, put in more and more credit risk on its balance sheet.
These stringent regulatory checks can be seen as an effective way by which the authorities in China want to keep the country’s largest tech companies, which can prove to be the biggest rival to traditional banks of China, under its control.
Will the Initial Public Offer by Ant eventually get the green light?
Ant may have become a victim of its own success and ambition. The company would have successfully been valued at an amount of more than $310 billion had this IPO been in place. These valuations would have surpassed the major investment banks of the United States such as Morgan Stanley and Goldman Sachs. The IPO was highly demanded with its Shanghai leg receiving more than 870 times the number of subscriptions asked for. All this may have made the Chinese regulators more cautious.
Hao Hong, managing director and head of research at investment bank Bocom International, says that it is quite unfortunate for the firm to get caught in the regulatory matters with the Chinese government, but despite the “unfortunate timing” Ant is caught up in, he still expects that Ma would revive his plans to go public.