The richest man in China, Jack Ma, had launched the world’s biggest Initial Public Offering (IPO). The head of the Alibaba Group has been at a focus point since two weeks ago he opined on China’s banking system at a high profile financial forum in Shanghai. During the speech, Jack Ma not only labeled the global banking Basel Accords as an “old people’s club” but also said that “systemic risk” is not the issue in China. He opined that China’s biggest problem is that the country “lacks a financial ecosystem”. He had said, “
As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million yuan, both you and the bank are a little nervous; but if you take a 1 billion yuan loan, you are not scared at all, the bank is.”
Thereafter on Monday, Jack Ma was summoned by the top financial institutions in Beijing and he faced the consequences of his daring speech. Draft rules were also issued on online microlending with stricter capital requirements and operational rules for some of Ant Group Co.’s consumer credit businesses.
However, the main event took place on Tuesday night. The Ant Group listing was suspended by the Shanghai Stock Exchange. They reasoned the suspension as the decision taken after Monday’s meeting and also because of the regulatory changes. It was also said in a filing that it would suspend its Hong Kong IPO also. The fin-tech giant was about to start a trade from Thursday. When the news came out, it was followed by a slide of Alibaba shares on Tuesday in New York where other Chinese companies US-listed stocks also seemed to come down.
What happened with Ant Group:
It would have been the biggest stock market debut in the world. But, the Chinese authorities have abruptly thrown into doubt the future of Ant Group Co. and its celebrated founder, the billionaire Jack Ma days before he was about to go public in Shanghai and Hong Kong. After Ma was summoned by regulators on Monday, his IPO worth $ 35 billion was taken down by the Chinese authorities who have claimed to find an array of shortcomings that which according to some, might require the sprawling Ant to be overhauled.
The company would have broken records. A Bloomberg report said that attracted at least $ 3 trillion of orders from individual investors for its dual listing in Hong Kong and Shanghai, and in the preliminary price consultation of its Shanghai IPO, institutional investors subscribed for over 76 billion shares, more than 284 times the initial offering tranche. It would have given it a market value of $ 315 billion on fillings which would be bigger than JP Morgan Chase& Co. and four times bigger than Goldman Sachs Group Inc.
Sean Darby, the chief global equity strategist at Jefferies, said, “The way I’d read it, it’s a deliberate public-relations move. This has happened before when companies appear to have become too big versus the state for the authorities’ liking.”
The markets around the globe reacted quickly to this unimaginable turn of events. Alibaba Group Holding Ltd., which owns an estimated one-third of Ant Group was seen to fall by 7.1 percent in Hong Kong after falling the most in about six years in New York. This affected Jack Ma’s fortune which went down by $ 3 billion.
Mike Bailey, director of research at FBB Capital Partners said to Bloomberg, “It’s definitely surprising. If there is something strange going on on the macro side for China’s financial markets or in the company, that would be worrisome.”
Ant Group, which is an affiliate of Jack Ma owned Alibaba Group, has grown into the world’s largest financial institutions in just ten years and also has been able to transform thousands of American lives.
No such issue related to the suspension was provided by the Chinese authorities. They only said that the much-anticipated debut couldn’t go ahead because there had been “significant change” in the regulatory environment.
A Bloomberg report cited several people familiar with the matter that thinks that the Ant Group will need to make changes including the capital increases at its lucrative micro-lending units. The company according to the source will also need to apply for a license for the units to work nationwide.
News portal QQ.com reported that the IPO is expected to be delayed by about six months and in the meantime, the funds will be returned to investors.
Ant Group, in a message to investors, said, “Ant Group sincerely apologizes to you for any inconvenience caused by this development. We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.”
Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney said to Bloomberg, “This further reinforces the regulatory pressures building on tech giants. It’s good news for banks, bad news for Jack Ma.”
Ant Group since it’s creation in 2010 has been one of the champions in the sector and an example of how the Communist Party has allowed entrepreneurs to flourish with its political system. The events of Tuesday have been a setback for the country especially when the country is trying to develop its stock exchanges to counter the US.