Ant Group under scrutiny over exclusive sale of shares in IPO
Chinese company sold exposure via its mobile payments platform in deal with 5 funds
China’s Ant Group, controlled by billionaire Jack Ma, is facing growing scrutiny for offering retail investors access to its $30bn share sale through an exclusive arrangement on its own mobile payments app.
Under the deal, investors bought exposure to the initial public offering — expected to be the world’s largest — through five funds that were exclusively allocated a portion of the company’s shares. Ant’s Alipay mobile phone application was the sole third party distributor of the funds.
“Is there a conflict of interest? Clearly there is,” said Peter Alexander, managing director at Z-Ben, a Shanghai-based consultancy, of Ant’s arrangement with the fund managers. “From an ethical standpoint you’re using your own platform to raise money from your clients to invest in your own company.”
In response to questions from the Financial Times, Ant said details about the funds had been “fully disclosed”, and that it was not underwriting its own IPO. “The newly established mutual funds that participated in Ant Group’s IPO as strategic investors . . . have been operating independently,” it said.
The planned dual listing of Ant, China’s dominant payments platform, in Shanghai and Hong Kong is one of this year’s most eagerly anticipated share offerings.
But while the Shanghai Stock Exchange approved the listing on its technology-focused Star market last month, Ant has yet to gain approval from China’s securities regulator for the Hong Kong portion of the IPO.
Fund managers and analysts said Ant’s arrangement with fund managers on Alipay could disrupt China’s capital markets business by diminishing the power of the country’s investment banks. It was unclear how China’s regulators would view the practice.
In addition to the normal retail tranche set to be offered to investors in Shanghai as part of the IPO, Ant allowed five domestic fund managers to buy up shares that they then offered to retail investors as “strategic allocation funds”. Alipay promoted the funds heavily ahead of China’s recent national holiday.
The five funds — run by China Asset Management, China Universal Asset Management, Zhong Ou Fund Management, Penghua Fund Management and E Fund Management — said they had raised a total of Rmb60bn ($8.9bn). Each was permitted by regulations to invest as much as 10 per cent of their assets in Ant shares.
Retail investors in the funds are subject to an 18-month lock-up period.
“Ant Group is . . . enabling Alipay users to invest in mutual funds. Just last week it raised $9bn, some people [were] investing as little as one yuan,” said Jeffrey Lee Funk, a tech consultant and former associate professor at the National University of Singapore.
Ant said in a statement on Tuesday that it was making “steady progress in the approval processes in Shanghai and Hong Kong”. This followed a Reuters report that regulators in China had delayed the approval of the listing in Hong Kong while they scrutinised Alipay’s arrangement with the funds.
The China Securities Regulatory Commission has not yet given the approvals Ant needs to get the green light for its IPO from the listings committee at the Hong Kong stock exchange, a person familiar with the matter told the FT. The person added that the IPO schedule remained within the normal timeframe.
Brock Silvers, former chief investment officer at Adamas Asset Management, said the Alipay arrangement with fund managers could have a “dramatic impact” on Chinese capital markets. “It aims to allow China Inc to increasingly bypass traditional investment banks in accessing vast pools of retail capital via companies like Alipay and [Tencent’s] WeChat Pay,” Mr Silvers said.
Z-Ben’s Mr Alexander said Ant could face resistance from China’s banking watchdog. But he added that the arrangement did not, to his knowledge, violate any financial regulations.
China’s securities regulator said in guidelines effective this month that fund distributors should assess whether there were conflicts of interest when selling their products and disclose these to investors.
One Asia-based fund manager said Ant had set up “a walled garden” around a portion of its listing.
The company will offer at least 10 per cent of its shares between Hong Kong and Shanghai to raise as much as $30bn, with some analysts valuing the company at as much as $318bn.