HONG KONG: China suspended Ant Group's $37 billion stock market listing on Tuesday, thwarting the world's largest IPO with just days to go in a dramatic blow to the financial technology company founded by billionaire Jack Ma.
The Shanghai stock exchange announced that it had suspended the company's initial public offering (IPO) on its STAR Market, prompting Ant to also freeze the Hong Kong leg of the dual listing, which was due on Thursday.
The move followed a meeting between Ma and China's financial regulators on Monday during which Ma and his top executives were told the company's lucrative online lending business would face tighter scrutiny, sources told Reuters.
The Shanghai bourse described Ant's meeting with financial regulators as a "major event" and said the showdown, plus a tougher regulatory environment, disqualified Ant from listing. In China, analysts interpreted the move as a slap down for Ma, who had wanted Ant to be treated as technology company rather than a highly regulated financial institution.
"The Communist Party has shown the tycoons who's boss. Jack Ma might be the richest man in the world but that doesn't mean a thing. This has gone from the deal of the century to the shock of the century," said Francis Lun, CEO of GEO Securities.
To revive its listing, Ant is trying to establish if it needs to disclose more information to the Shanghai exchange about its relationship with regulators, or if the bourse expects it to resolve all its issues with the regulators, which would take much longer, a person with knowledge of the matter said.
At a public event last month, Ma called China's financial regulation outdated and badly suited to companies trying to use technology to drive financial innovation.
Ant believes that public criticism put Ma in the crosshairs of regulators, said the person.
The suspension of the listing reverberated across markets, with Alibaba Group Holding , which owns about a third of Ant, falling 9% in U.S. trading. That wiped nearly $76 billion off its value, more than double the amount Ant was planning to raise through its IPO this week.
"This is a curve ball that has been thrown at us ... I don't know what to say," said one banker working on the IPO.
Beijing has become more uncomfortable with banks heavily using micro-lenders or third-party technology platforms such as Ant for underwriting consumer loans amid fears of rising defaults and deteriorating assets in a pandemic-hit economy.
The tougher regulatory focus on Ant's cash cow and rapidly growing consumer lending business to curb financial sector risk had emerged as a key concern for investors in the IPO, despite the company's attractiveness as a fintech player.
Ant originates demand from retail consumers and small businesses and passes that on to about 100 banks for underwriting, earning fees from the lenders and putting its own balance sheet at minimum risk.
Ant's consumer lending balance was 1.7 trillion yuan ($254 billion) at the end of June, or 21% of all short-term consumer loans issued by Chinese deposit-taking financial institutions. Only 2% of the loans it had facilitated were on its balance sheet, its IPO prospectus showed.
"It's the right move to regulate what's essentially a financial institution as their peers. And it's wrong not to do that in the past, and the mistake is being corrected. It will have a negative impact on pricing," said Zhong Daqi, founding partner of Guangzhou Zeyuan Investment Management Co.
Under draft rules published on Monday by China's central bank and banking regulator, small online lenders must provide at least 30% of any loan they fund jointly with banks.
Ant was set to go public in Hong Kong and Shanghai on Thursday after raising about $37 billion, including the greenshoe option of the domestic leg, in a record IPO that had attracted leading global investment firms.
The IPO was also a sensational draw for mom-and-pop investors in China and Hong Kong who bid a record $3 trillion, equivalent to the annual economic output of Britain, for shares in the fintech giant. For the Hong Kong leg, retail investors borrowed heavily from banks to buy Ant shares.
An official at a Chinese state-backed investment firm, which is also an existing investor in Ant, wondered whether it would be "politically correct" to make fresh investments in the company given its run-in with the regulators.
Starting as a payments processor in 2004, Ant quickly built an empire by offering users short-term loans credited within minutes as well as selling insurance and investment products.
China's state-backed Economic Daily newspaper said in a commentary that the IPO suspension showed regulators' determination to protect the interests of investors and the most pressing matter was for Ant to carry out "rectifications".
"Ant may be just falling victim to their own size and success," said Alex Sirakov, senior associate at advisory firm Kapronasia. "I am more inclined to think of this as a political message reminding everyone this is a highly regulated economy."
Ant apologized to investors for any inconvenience caused by the IPO delay. "We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges," it said.
The company said it would release further details on the suspension of its Hong Kong listing and on applications for refunds as soon as possible.
Alibaba said it would support Ant to adapt and embrace the evolving regulatory framework.
CICC and China Securities Co, co-sponsors for Ant's STAR IPO, did not immediately respond to requests for comment.
U.S. banks JPMorgan and Citigroup declined to comment, while Morgan Stanley did not immediately respond to a request for comment. The three Western banks are co-sponsors of Ant's Hong Kong IPO along with CICC.
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