In a significant development, Chinese Ant Group’s record $37 billion initial public offering has been suspended with Chinese regulators describing the move as reasonable and necessary. The suspension was just days before its dual debuts in Hong Kong and in Shanghai.
Much like the opaqueness that is a constant presence in the Chinese market, regulators have not disclosed the exact nature of their concern for disqualifying Ant Group’s dual listing plans.
Picking up and supporting the state’s narrative, Zhang Zixue, a professor at the China University of Political Science and Law was quoted by China Securities Journal as saying the entry of large tech firms into finance has led to data privacy and fair competition concerns.
Ant and its intermediaries should “fully evaluate the problems and risks reflected in public opinion, and take effective preventive measures,” said Zixue to the newspaper.
The decision to suspend listing of the IPO followed a meeting between China’s financial regulators and Ant executives, which was naturally attended by billionaire founder Jack Ma. During the course of the meeting, Ant executives were told the company would face higher scrutiny. The Shanghai bourse described the meeting as a material event that could cause Ant to be disqualified from listing.
Significantly, Chinese regulators have yet to publicly disclose their concerns; how long the suspension may last is also uncertain. It is also possible that the dual listing may have to be pulled altogether.
Ant originates demand from retail consumers and small businesses and passes that on to about 100 banks for underwriting, earning fees from the lenders with minimal risk to its own balance sheet.
Interestingly, a few analysts pointed to the emergence of a consultation paper issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission earlier on Monday that recommends the tightening of regulations for online micro-lending companies. In retrospect this foreshadowed the regulators’ move against the Ant Group.
According to Iris Tan, a senior equity analyst at Morningstar, she expects Ant will be required to have more registered capital for its consumer credit business.
In a note to clients Bernstein analysts said “the company’s growth assumptions must be revisited and it could take months for Ant to revive the IPO if the regulators want the company to make certain business structure or licensing changes.”
Last month Ma had made a speech, which was attended by Chinese regulators, during which he had been critical of the financial and regulatory system since it stifled innovation and had called for reforms to fuel growth.