China's shock suspension of Ant IPO lauded as necessary by state media

SHANGHAI/HONG KONG: China’s shock move to suspend Ant Group’s record $37 billion listing was described as necessary and reasonable by state media as well as by some analysts, even though it came just days before its dual debuts in Shanghai and Hong Kong.

The entry of large tech firms into finance has led to concerns about fair competition and data privacy as well as other issues, the China Securities Journal quoted Zhang Zixue, a professor at the China University of Political Science and Law, as saying.

Ant and its intermediaries should “fully evaluate the problems and risks reflected in public opinion, and take effective preventive measures,” he told the newspaper.

The decision by the Shanghai stock exchange followed a meeting between China’s financial regulators and Ant executives, including billionaire founder Jack Ma, in which they were told the fintech giant’s lucrative online lending business would face tighter scrutiny, sources told Reuters.

The exact nature of the regulators’ concerns and just how long a suspension might last or whether it is also possible the listing will have to be pulled altogether remain unclear. The Shanghai bourse described the meeting as a material event that could cause Ant to be disqualifed from listing.

Shares in Alibaba Group Holding Ltd, which has a one-third stake in Ant, dropped as much as 9.3% on in Hong Kong on Wednesday. Alibaba’s New York shares ended down 8.1% overnight.

A tougher regulatory focus on Ant’s cash cow and rapidly growing consumer lending business had emerged as a key concern for investors in the IPO, despite the company’s attractiveness as a financial technology 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 with minimal risk to its own balance sheet.

Some 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 on Monday that recommends the tightening of regulations for online micro-lending companies - which in retrospect foreshadowed the regulators’ move against Ant.

Iris Tan, a senior equity analyst at Morningstar, said she thought the regulator was aiming to level the playing field for fintech players and traditional financial institutions and that she expects Ant will be required to have more registered capital for its consumer credit business.

Bernstein analysts said in a note to clients that 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.

The topic “Ant Group’s IPO suspended” was the top trending topic on China’s Twitter-like Weibo on Wednesday.

Some commentators said while regulators had “closed one eye” to Ant’s rapid growth in the past, its IPO meant they could no longer do so, since risks would now shift towards its shareholders and the public.

Many also took aim at Ma, who had made a speech at an event last month attended by Chinese regulators that criticised the financial and regulatory system as stifling innovation and needed to be reformed to fuel growth.