Beijing says it halted $37bn Ant IPO to protect market stability
China’s regulators scuppered record stock market debut after summoning founder Jack Ma
Beijing said its suspension of the $37bn listing of Ant Group, controlled by China’s richest man Jack Ma, was needed to protect the country’s capital markets as investors reeled from the eleventh-hour decision.
The move to halt the world’s largest initial public offering of the online lender for an indefinite period would most likely have been signed off by Chinese president Xi Jinping, people familiar with the Communist party’s decision-making process said.
Wang Wenbin, China's foreign ministry spokesman, said on Wednesday the suspension of the IPO aimed to “better maintain the stability of the capital markets and to protect investors’ interests”.
The Shanghai stock exchange cited “major issues” including changes to the “financial regulatory environment” for its decision on Tuesday evening to halt the offering, which was due to start trading in the city and in Hong Kong on Thursday.
The reversal marks the biggest setback for China’s private-sector entrepreneurs since Mr Xi took power in 2012. The Hong Kong-listed shares of Alibaba, which owns about one-third of Ant and relies on its technology to power its payments platforms, fell 8 per cent on Wednesday.
Mr Ma was unique among his peers in daring to challenge the country’s powerful state-dominated banking sector.
People familiar with the matter said Mr Ma had lobbied regulators against proposals for stronger supervision of online lenders. Ant did not immediately respond to a request for comment on the matter.
In a speech in Shanghai on October 24, he suggested the country’s big lenders had a “pawnshop mentality” and that Ant was playing an important role in extending credit to innovative but collateral-poor companies and individuals.
But after the speech, Mr Ma was summoned by Chinese regulators for “supervisory interviews”. The authorities also announced a slew of new rules for online lenders that could damp Ant’s future profits, casting doubt on valuation of the IPO.
The Shanghai exchange cited “other major issues” including changes to the “financial regulatory environment” for its decision to halt Ant’s listing.
State bank executives have long argued that online finance groups such as Ant enjoy unfair regulatory advantages and pose a risk to the financial system. Fintechs were not subject to the same prudential requirements on issues such as collateral as banks, they said.
“While Ant currently reports a low level of defaults [thanks to] its technology, the figure could take off in the event of a sharp economic slowdown,” said an executive at one of China’s “Big Four” state-owned banks. “That creates social risks the government is keen to avoid.”
The banker added that Mr Ma’s comments at the forum suggested “he wanted to openly challenge the regulator which was unacceptable — that prompted the regulator to go ahead and announce the new rules”.
Mr Xi has strived to boost the primacy of China’s largest state-owned enterprises. While his administration has previously targeted entrepreneurs whose groups were dangerously leveraged, none were as famous or as successful as Mr Ma.
“The logic for Beijing is: ‘If I don't understand and can’t control you — I won't let you grow’,” added the state-run bank executive.
The draft rules issued by China’s central bank this week would require Ant to fund at least 30 per cent of its outstanding microfinance loans totalling Rmb1.8tn from its own balance sheet, compared with 2 per cent currently.
“The trouble is the regulatory environment in which they’ve built their business — on which they’ve presented a series of financials to investors — is going to change, and change against them,” said Fraser Howie, an independent consultant and expert on China’s financial system.
Analysts said it was difficult to determine how long Ant’s IPO would be suspended.
They “will almost certainly return to the market at some point, though the timetable is unclear”, said Andrew Batson, China research director at Gavekal, a research firm. “But the company may well have to make substantial changes to its internal organisation and business model to comply with new regulatory requirements.”
The suspension of the IPO also throws into doubt what would have been a bumper payday for Wall Street investment banks and others working on the deal, which were expected to reap at least $300m in fees.
“The deal would have to complete in order to get paid,” said one Hong Kong-based investment banker who worked on the Ant deal. “It is making everyone very nervous,” added an IPO lawyer in the city.
Ant has vowed to return cash committed to its IPO by retail investors in Shanghai and Hong Kong — many of whom bought with high levels of leverage. But some suggested it had shaken their faith in investing in China’s markets.
“It's a big blow to investors’ confidence,” said Gu Qiankun, a 31-year-old investor in Wuhan who had bought 500 Ant shares.
But Rebecca Chua, founder of Hong Kong investment company Premia Partners, said it was “better for the regulators to put constraints” on Ant now rather than expose traders to heavier losses later. “You don't want retail investors to lose half their fortunes. Jack Ma can afford to — but they can't.”