Armies of Ant investors had hoped to turn the Alibaba affiliate into the world’s record-breaking initial public offering.
But the decision to suspend the listing on November 6 left them shaking their heads in disbelief after Chinese authorities unveiled new financial regulations.
“The regulatory Party Pooper is here — what timing,” Kevin Kwek, an analyst at Bernstein, an investment management company, said in a note.
Before the decision shocked investors, Ant was on track to surpass the record set by Saudi Aramco’s $29.4 billion IPO last year.
A figure of around $37 billion was mentioned as the e-wallet and digital financial company prepared to float simultaneously in Hong Kong and on Shanghai’s Nasdaq-style STAR Market.
The numbers were not outrageous when you include its insurance and lending services. In 2019, the group made a net profit of 18 billion yuan ($2.7 billion) with revenue of 120.6 billion yuan.
Since it was launched by Alibaba’s e-payment platform Alipay in 2014, Ant has grown into a Chinese colossus.
“It’s like having Apple on [the] Nasdaq,” Fred Hu, the founder of the Primavera Capital Group that backed Ant early on, told the Wall Street Journal before the IPO was put on ice.
So, why did the IPO go horribly wrong?
There is more than one answer to that question.
The timing of new regulations that will treat fintech firms more like traditional bricks and mortar banks was not surprising. It had been in the works for months.
Yet China’s securities regulator still gave Ant the green light on October 21 just weeks before the IPO. As the CNN news network pointed out, the group had “now cleared all regulatory hurdles for a dual-listing.”
Since then, there have been broader efforts by Chinese policymakers to prevent systemic risks and curb rising debt, the Reuters news agency stressed. Tighter regulations and increased security of the online financial sector have become a priority.
“The decision was made in accordance with laws and regulations … and about maintaining stable, healthy market development in the long term,” Liu Guoqiang, the deputy governor of the People’s Bank of China, said at a media briefing on November 6.
Analysts highlighted that about 2% of the 1.7 trillion yuan ($254 billion) of loans “enabled” by Ant is on the company’s balance sheet. But that figure was in the company’s prospectus in the run-up to the IPO.
Also, small retail investors used their savings or raised cash to bid for shares worth a staggering $3 trillion. A future collapse in the stock price could have triggered a financial and political crisis for the ruling Communist Party.
Were there other reasons for what can only be described as a listing shambles?
There is growing evidence that this was a slap in the face for Jack Ma by President Xi Jinping and the rest of the CCP hierarchy.
Charismatic with a controversial streak, the technology tycoon and founder of Alibaba, Alipay and Ant is worth around $48 billion.
His outspoken views on the future of tech have been widely applauded by the bosses in Beijing. But this time he appears to have overstepped the mark.
Speaking at the Bund Summit 2020 in Shanghai, Ma seemed to take a metaphorical machine gun to the regulatory old guard.
“Today’s financial system is the legacy of the Industrial Age. We must set up a new one for the next generation and young people. We must reform the current system,” he told his audience in China’s financial heartland at the end of October.
“We must do away with the ‘pawnshop’ mentality of today’s finance. We must rely on the development of a credit system. Banks today are still a continuation of the pawnshop mentality,” he added, leaving several senior Party officials furious.
Included in the angry squad were China’s Vice-President Wang Qishan and Yi Gang, the central bank governor, who also spoke at the summit.
Days later Ma was summoned by the regulatory authorities and the rest is history.
“[They] want to put out statements that they’re the ones in charge, the ones in control. No regulator anywhere wants to be irrelevant,” Duncan Clark, the author of Alibaba: The House that Jack Ma Built and chairman of investment advisory firm BDA China, told Reuters.
But where does this leave Ma and Ant now?
The big plan has always been to turn Alibaba and Ant into major global brands.
At home, preferential treatment from the CCP has helped the companies Ma built expand dramatically.
The digital network in China is virtually closed to foreign firms and is dominated by the big three of Alibaba, Tencent and Baidu or the BAT boys.
Away from that comfort zone, they would face intense competition.
“Alipay’s rise accompanied that of Alibaba, whose 742 million online shoppers have to use it to pay for their goods. But in the global online marketplace, Alibaba lacks that kind of muscle,” the Financial Times pointed out.
Another problem for overseas customers and governments could be Ma’s political affiliation. In 2018, the Party’s official mouthpiece, the People’s Daily, revealed that he was a member of the CCP.
“My philosophy is to be in love with the government, but never marry them,” he said at the World Economic Forum in Davos in 2007.
Still, those that join the CCP must recite an oath of allegiance which stipulates:
“Be loyal to the Party, work actively, fight for communism all one’s life, always be prepared to sacrifice everything for the Party and people, and never betray the Party.”
For many in Beijing’s corridors of power, he did just that with his vision of fintech and Ant.