China derails Ant Group's giant $34.5B IPO

Ant Group is a financial tech titan that created an easy mobile payments system used by hundreds of millions of Chinese people everyday.

Ant Group headquarters in Hangzhou, Zhejiang province, China.
Reuters

Ant Group headquarters in Hangzhou, Zhejiang province, China.

The world’s biggest online finance company was racing toward a stock market debut when it was derailed by Beijing’s anxiety about risks in the fledgling industry, jarring global investors and deepening uncertainty about China’s financial markets.

Regulators suspended Ant Group’s record-setting $34.5 billion stock offering two days before trading was due to start in order to “maintain the stability of the capital market” and protect investors, a foreign ministry spokesman, Zhao Lijian, said on Wednesday.

Zhao gave no details, but finance experts said the ruling Communist Party is worried the company might be unable to manage financial risks leaders want to contain as China tries to get economic growth back on track after the coronavirus pandemic.

Retail investors shocked

Backed by Jack Ma, China's richest man who founded the Alibaba e-commerce empire two decades ago, Ant is a financial technology titan stitched into the everyday life of hundreds of millions of Chinese people through its easy mobile payments system.

The suspension followed a Monday meeting between China's financial regulators and Ant executives, including Ma, who were told the company's lucrative online lending business would face tighter scrutiny, sources told Reuters.

Retail investors in the two markets, from taxi drivers to students and young professionals, used their savings and borrowed heavily from banks and brokerages for what many saw as a once-in-a-lifetime investment opportunity.

"I feel like I made a very wrong decision," said 21-year-old Hong Kong resident and Cambridge student, Vincent Tse, who applied for 2,000 shares worth around HK$160,000 ($20,640) which he earned doing a part-time job.

"This situation really reveals a deep problem in the Chinese market and shows a lack of experience in holding such a large IPO," Tse said, adding that he would no longer invest in Ant and reinvest in US, European or Japanese stock markets.

In China, investors cited the changing business environment as a key factor weighing on Ant's future development with some saying they would still be keen to invest.

"I'd probably invest again just because of the sheer size of the market share Ant Financial has," said a 21-year-old student investor in Beijing who goes by the name Clementine.

The unprecedented retail frenzy for Ant's shares was backed by a massive amount of margin lending by financial institutions in mainland China and in Hong Kong, with brokerages in Hong Kong lending billions of dollars.

China's fintech flyer grounded

The group, which has more than 700 million monthly active users, has drawn concern in China's state-controlled finance sector by venturing into personal and consumer lending, wealth management and insurance.

What is Ant?

Ant Group is the parent company of Alipay, China's pioneering digital payments firm, which was founded by Ma in 2004.

A former teacher, Ma started in digital sales with the Alibaba e-commerce giant but his ambitions then turned to the potential for simplifying personal finance in China.

He envisioned a cashless society based on "trust and credit" where buyers' cash is held in escrow by Alipay for merchants to send their goods with a guarantee of return for any unhappy customers.

In interviews Ma likes to recount how the start of Alipay was met with derision, saying: "Everybody said 'Jack this is the most stupid model we've ever seen, nobody will use it'."

From payments for food deliveries, instant loans to micro-investment and insurance, Ant has mushroomed into an integral part of everyday Chinese life.

It now claims one billion users, partly thanks to Ma's gift for navigating China's red tape and gatekeepers.

But he may have crossed the line last month at a Shanghai business forum where he appeared to criticise regulators for being too heavy-handed and stifling technological innovation -- prompting criticism in state media over the risks of Ant becoming too big.

Colonising Chinese finance

Ant's reach is astonishing. It is the world-largest digital payments platform, claiming 731 million monthly users on the Alipay app using more than 80 million stores.

That equated to $17.6 trillion in payments as of June this year, 25 times more than US giant Paypal.

The company is leading the line on blockchain technology and says it has a capacity to match one billion transactions a day on the so-called AntChain.

Its financial products have revolutionised personal finance across a country where around 10 percent of the population remains unbanked.

The Alipay app launched in 2013 a "Yu'eBao" service, which allows ordinary people to play money markets from their e-wallet.

The "leftover treasure" concept gave entry to investments of as little as one yuan, briefly becoming the world's biggest fund with nearly $200 billion in circulation.

Meanwhile, Zhima Credit (or Sesame Credit) is its credit scoring system, and Bangnitou, an artificial intelligence powered investment adviser, hoovered up 200,000 customers within six months of its launch.

Its supercharged success may be behind its sudden regulatory woes.

Stormy waters

Armed with the data of hundreds of millions of people, boundary-pushing AI and its pockets planned to be stuffed with IPO cash, Ant had a vision for new innovations and rolling into new markets.

Domestically, Alipay is pushing facial recognition payments technology, and abroad, the vast, young tech-friendly populations of Southeast Asia and India are seen as fertile ground for its products.

READ MORE: China announces sanctions in tech war with US

But Tencent's WeChat, the second player in China's digital payments market, is gobbling up market share, and global trust in Chinese technology has taken a hit.

Most importantly, the field of fintech has come under state scrutiny at home, with new state regulations introduced to contain potential risks in China's growing online lending industry, an area Ant has been rapidly expanding in.

Loading...

Shock IPO suspension

Just as the IPO looked set to roll, regulators called a halt and told Ant it couldn't go ahead until it complied with new capital requirements.

The Shanghai Stock Exchange cited "changes in the fintech supervisory environment" late Tuesday, ending the sale, which was also called off in Hong Kong.

A day earlier Ma and Ant executives were summoned to a rare joint meeting with the country's central bank and three other top financial regulators, prompting speculation they had been given a dressing-down.

Recently state media have started issuing warnings about potential financial instability that could result from Ant Group's rapid growth, as well as criticising Ma's comments about over-regulation.

Already China's richest man, Ma stood to make around $27.8 billion from his 8.8 percent stake in Ant if the share sale had gone to plan. Instead, a plunge in Alibaba's share price in Hong Kong and New York has taken a chunk out of his fortune.

READ MORE: Zhong Shanshan: The water tycoon who just became China’s second richest man

READ MORE: Ali Baba’s Jack Ma generates soft power diplomacy in Africa

Route 6