China’s last-minute abandonment of Ant Group’s record IPO stems from an increasingly intense battle for the soul of the nation’s financial system that the fintech giant and its charismatic leader Jack Ma helped ignite.
Global markets were stunned Tuesday when Ant’s record $ 34 billion IPO was abruptly shelved, frustrating investors eager for a piece of the fast-growing company.
The debacle has caused you to scratch your head about how the IPO got so close – the stock was due to start trading on Thursday – only to crash at the finish line.
Analysts say it was the culmination of a growing rivalry between Ma, the co-founder of Ant and the billionaire founder of Alibaba, and a state-dominated Chinese banking and regulatory system controlled by the Communist Party that has grown uncomfortable with rising power. of Ant.
Ant Group made a name for itself through its flagship product Alipay, the online payments platform and super app that is now deeply embedded in China’s economy.
But the company has also expanded to offer loans, credit, investments and insurance to hundreds of millions of consumers and small businesses, sparking fear and jealousy in a broader banking system geared more toward supporting state policy and large corporations. .
As global demand for the Hong Kong-Shanghai double listing pushed the IPO toward record valuations, which could give Ma and Ant Group even more funding, legitimacy and influence, Chinese regulators acted.
In recent weeks, new minimum capital requirements and other restrictions were imposed on online lending to protect against “systemic risk,” covering some of the regulatory gaps that Ant Group had bridged, analysts said.
“Given the scale of Ant Group’s operations, regulators may have felt they did not have adequate control over the flow of money that is processed through Ant Group’s products,” said Philippe Espinasse, consultant for capital markets and former investment banker.
– Ma sounds muffled –
The moves angered Ma, 56, who had positioned himself to become the richest man in Asia through the IPO.
Unusually, he lashed out in a speech two weeks ago, saying that capital requirements were outdated and that China lacked a true “financial ecosystem.”
Ma likened Chinese banks to “pawnshops” for requiring loan guarantees and hinted that they did not serve smaller and younger borrowers.
Chinese public figures rarely criticize the government and the reaction was swift.
A series of comments in government media spokesmen rebuffed Ma, warning of the great risks from online lenders such as Ant Group and promising stricter supervision.
Things came to a head on Monday when Ma and two other Ant executives were called to a highly unusual meeting with financial regulators.
The exact details of the talks remain unknown, but the next day the Shanghai Stock Exchange withdrew the IPO.
Ma’s criticism “did not go down well with regulators, many of which have been grappling with the risks of microloans,” said Alex Capri, a researcher at the Hinrich Foundation.
“Ant has become too big and too influential as a financial institution in China, something that will not be tolerated by the (ruling Communist Party),” Capri said.
Experts say a strong online lending industry is needed to meet the needs of ordinary consumers, but China has reason to fear a loan binge.
Bad debts in the country’s chaotic financial system are a perennial risk, and regulators launched an offensive against a growing addiction to credit nationwide three years ago due to fears of a financial collapse.
– “Horrible” moment –
But Ant now has about 500 million users of its loan and credit products, which allow consumers to obtain cash loans or access revolving lines of credit.
This has stoked fears that a younger digital generation with little risk awareness could spiral into debt for life, said Zhang Gang, a strategist at Central China Securities.
“Because of Ant’s scale and influence, they may dominate private lending in the future and … (acquire) private lending companies,” said Zhang, who feels that stricter regulations are urgently needed.
The IPO is expected to continue eventually after Ant complies with the new regulatory requirements, which it has agreed to do, although analysts expect the size and valuation to be lower in light of restrictions on Ant’s businesses. .
But the “terrible” timing of the IPO exit could dampen China’s hopes of being seen as a financial and technological force to rival the United States, Espinasse said.
Beijing is pressuring its national tech champions to list on China’s stock exchanges rather than in the United States, in part due to growing bilateral rivalry.
“This potentially has significant implications, not only for the welcome lists, but also for the lists of Chinese tech companies in general,” Espinasse said.
“Ultimately, financial markets are built on trust and transparency and we don’t seem to have that right now.