Chinese regulators in Shanghai and Hong Kong have suspended the highly anticipated Ant Group IPO, which attracted US$3 trillion in bids and was set to be the largest IPO in history.
Ant Group was set to go public via a dual listing on the Hong Kong and Shanghai exchanges this week to raise nearly US$35 billion. The regulator’s last-minute delay came after a high profile speech by founder Jack Ma weeks ago and a private meeting between Ma and the regulators on November 2.
On October 24, Jack Ma made a poignant speech at the 2nd Bund Financial Summit in Shanghai. His speech, made into video, went viral among Chinese financial and tech circles immediately.
In that speech, Ma lashed criticism pointed at Chinese financial regulators, saying that "innovation must come with sacrifices and costs…To do risk-free innovation is to stifle innovation!" "China has no financial system", "The Basel Accord (which China joined) is a club belonging to the elderly!""Chinese banks are still pawnshops, and they have harmed many entrepreneurs!"
On the evening of November 3, the official website of the Shanghai Stock Exchange issued the "Decision on Suspending the Listing of Ant Technology Group Co., Ltd. on the Sci-tech Innovation Board". Ant Group, which was originally scheduled to be listed on the SSE Sci-tech Innovation Board on November 5, was suspended from listing. Subsequently, the Hong Kong Stock Exchange also issued an announcement to suspend the listing of Ant H shares.
The market suspect that the speech and Ant’s delayed IPO might be linked, but so far both Ant and the regulators have not made any comment beyond making necessary disclosures to the exchanges.
The latest news shows that Ant’s IPO is expected to be delayed by half a year. However, no party responded to this speculation.
According to an announcement by the Shanghai Stock Exchange, the actual controller, chairman and general manager of Ant Group jointly conducted supervisory interviews by relevant departments. Ant Group also reported changes in the financial technology regulatory environment and other major issues. This major event may cause Ant Group to fail to meet the issuance and listing conditions or information disclosure requirements. In accordance with relevant regulations and consulting sponsors, the Shanghai Stock Exchange decided to suspend the listing of Ant Group.
Once the news came out, the share price of Alibaba, the major shareholder of Ant Group listed in New York, plummeted before the market. After the U.S. stock market opened, Alibaba’s opening price plummeted 8% compared to the close of the previous trading day, and its market value fell by US$66.6 billion.
After the suspension of Ant’s IPO, it needs to re-adjust the business content and re-valuate the businesses being planned to list publically. It is reported that on the evening of November 3rd, the chairman of Ant Group Jing Xiandong convened an emergency meeting with senior management within the group. At the meeting, he mentioned “suspending” the IPO and conservatively estimated that the time for Ant’s listing will be delayed by about half a year.
On the evening of November 2, in order to regulate the online microfinance business of microfinance companies, the China Banking and Insurance Regulatory Commission, in conjunction with the People’s Bank of China, drafted the "Interim Measures for the Administration of Online Microfinance Business (Draft for Comment)" and solicit opinions from the public.
Ant Group holds two small loan licenses, namely Chongqing Ant Mall Microfinance Co., Ltd. and Chongqing Ant Small Microfinance Co., Ltd. Three new regulations in the "Interim Measures" may be closely related to Ant Group.
1) Article 12 of the "Interim Measures" stipulates that microfinance companies operating online microfinance business shall not use bank loans, shareholder loans and other non-standard financing methods to deposit funds with a balance of not more than 1 times their net assets; through the issuance of bonds , Asset securitization products and other standardized debt asset forms shall not exceed 4 times their net assets.
2) Article 13 of the "Interim Measures" stipulates that, in principle, the balance of single-family online micro-loans for natural persons shall not exceed RMB 300,000, and shall not exceed one third of their average annual income in the last three years. These two amounts The lower one is the maximum loan amount; in principle, the balance of single-family online small loans to legal persons or other organizations and their affiliates shall not exceed RMB 1 million.
3) Article 15 of the "Interim Measures" stipulates that in a single joint loan, the proportion of capital contribution of a small loan company operating an online small loan business shall not be less than 30%.
The "Interim Measures" firstly controlled the leverage ratio of financial technology companies in developing credit business through small loan companies. The above-mentioned Article 1 stipulates that the small loan company’s own capital leverage is controlled at five times; at the same time, Article 3 stipulates that the small loan company shall be restricted to contribute no less than 30% in the joint loan.
According to the current RMB2.1 trillion credit balance disclosed in the Ant Group’s prospectus, Ant’s small loan company needs to invest RMB630 billion in the joint loan, which means that its net assets will reach at least RMB105 billion.
According to Ant’s prospectus, the total net assets of Ant Mall and Ant Micro is about RMB35 billion yuan, which is three times less than the above-mentioned net assets requirement.
If Ant Group wants to further expand the scale of its microfinance business in the future, it will also need to increase the net assets of the microfinance company in the same proportion (at least 20 times leverage).
What is most noteworthy at the moment is whether, behind the suspension of Ant Group’s IPO, regulators will require Ant to adjust or even spin off small loan companies that are currently facing stricter regulation.