Founder and Ant-controlling shareholder Jack Ma and other top executives for a meeting could spark a reassessment of ratings for Chinese fintech companies, especially startups, but it’s unlikely to derail the most recent Chinese IPO boom.
Ant’s much-anticipated simultaneous public offerings on the Hong Kong and Shanghai stock exchanges were estimated to raise $ 34.4 billion This makes it the world’s largest IPO. The deal was significantly oversubscribed due to strong investor demand and likely would have attracted even more Chinese companies to debut in their home country. Fund manager also expected the offer to reach fintech companies in a variety of other companies such as
(Ticker: JD) and
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However, the postponement of the offering after Chinese regulators enacted new rules and Ant executives were brought in to meet with regulators was not the kind of attention investors expected. US-listed shares of Alibaba (BABA), which would have held a third of Ant after the offer, fell 6.7% to $ 289.98 in the last trade as investors tried to gauge the impact. Shares of other Chinese fintech companies fell only marginally, with JD.com falling 0.5% to $ 86.68 and shares of Tencent Holdings falling 0.58% to $ 598 Hong Kong overnight.
“The new financial regulations are clearly negative for Ant in the short term, but we believe that at some point things will be ironed out because the government wants a dynamic microfinance sector and Ant is the only way to achieve it,” said Arthur Kroeber, founding partner of Ant Das Chinese Research company Gavekal Dragonomics via email.
The nature of Ant’s business, which serves 1 billion users and generates more than $ 17 trillion in annual payments, puts it in the crosshairs of regulators. “Ant has a very long tradition of staying ahead of regulators, and they operate at the limits of fintech innovation, which by definition has the potential for systemic risk,” says Krober. “They are also enormous. Few other companies match this profile. So when you read it for the first time, it is unique. Most likely it will continue at some point with a delay. “
Ant’s valuation may need to be adjusted significantly, however, with the prospect of increased regulation, says Winston Ma, former general manager and head of North America for Chinese sovereign wealth fund China Investment Corp and author of The Hunt for Unicorns: How SWFs are reshaping investments in the digital economy.
And that feeling could spread further. “If Ant had a gangbuster IPO, everyone else would be taken,” Ma said in an interview. “For all fintech startups in China, this is a moment of reality check and re-evaluation.”
The meeting with top managers suggests that the new regulations may be more complicated. They could also draw attention to tighter government scrutiny over antitrust and privacy issues, Ma said. As for Ant, Ma believes it could take the company a while to get back on a public offer given the regulations and the disclosures required.
Ant’s IPO should further boost the reputation of Shanghai’s Star Board, China’s answer to the Nasdaq, which has already been ranked the third most popular IPO destination after the New York Stock Exchange and the Nasdaq. Analysts do not see the delay as affecting the dynamics of Chinese companies, which are trading ever closer to their home country. Shanghai topped the target for IPO proceeds in the first quarter, while IPO and Hong Kong revenues increased 67% year over year through September.
Chinese companies have also increasingly sought listings closer to where they live in Hong Kong and Shanghai’s Star Board – a trend that analysts like Kroeber are continuing to see despite Ant’s delay. However, the delay could cause some reputational damage to the Chinese market as a large last-minute IPO derails due to a combination of regulatory non-coordination and politics.
But the backdrop is likely to continue the trend. An ongoing attempt to delist US-listed Chinese companies that fail to comply with audit rules has led several large Chinese companies, including Alibaba and JD, to secure secondary listings in Hong Kong, and US fund managers have done so traded their stocks for the local listings. It’s a trend most continue – and – despite the IPO delay regardless of who wins the US election.
Write to Reshma Kapadia at [email protected]