For Ant Group, for Alibaba, and for the biggest IPO ever, it’s a case of hurry up and wait.
As noted by CNBC on Tuesday (Nov. 3), stock exchanges in Shanghai and Hong Kong have suspended the looming IPO (initial public offering) in Ant Group, citing regulatory changes in the financial services landscape — and summoning executives including controller Jack Ma to meet with Chinese regulators at the China Securities Regulatory Commission.
In terms of collateral damage, Alibaba shares slipped as much as 8 percent in early trading.
In language from the Shanghai exchange translated from the Mandarin by CNBC and sent to Ant, the exchange noted, “Your company has also reported significant issues such as the changes in financial technology regulatory environment. These issues may result in your company not meeting the conditions for listing or meeting the information disclosure requirements.”
As has been widely reported, the listings — to have been done dually in Shanghai and Hong Kong on Nov. 5 — would have raised an estimated $34 billion.
Evolving Regulatory Framework
In a sign that the scrutiny might go on for a bit, Alibaba, which owns 33 percent of Ant, said through a spokesperson, “We will be proactive in supporting Ant Group to adapt to and embrace the evolving regulatory framework. We have full confidence in Ant Group colleagues’ ability to do a good job. Society has high expectations for Alibaba. We will continue to work hard to not only meet but exceed expectations and fulfill our responsibility to society.”
Ant has also said — with a nod to the meetings this week between Ma, other executives and regulators — that “views regarding the health and stability of the financial sector were exchanged,” where Ant Group is “committed to implementing the meeting opinions.”
There’s not much detail as to what the meeting opinions might have been, or what Ant might have to do in order to move ahead with the listing. But as PYMNTS reported in September, Chinese regulators have been boosting their scrutiny of non-bank financial companies.
On Monday, as recounted by Reuters, the central bank is increasing its oversight of microlending, and will limit the amount that can be extended to borrowers and will require them to fund at least 30 percent of loans jointly underwritten with other lenders. That oversight will extend to companies like Ant Group. Draft rules are open for comment through December.
And, we contend, this might impact at least some of Ant’s operations. As noted in the company’s listing documents, the company has a wholly-owned subsidiary, Ant Small and Micro Loan, which provides funding through its digital finance technology platform.
At a high level, according to the filing, “With China’s economy shifting towards domestic consumption and the growth of small businesses, the financial services needs of consumers and small businesses have expanded considerably and demand for credit, investment and insurance products is projected to increase substantially. These needs are underserved by brick and mortar channels of the financial system because of the lack of reach and customer insights in the process of underwriting risk, for example in the case of a micro-loan or small-claims insurance.”
The demand for such lending — in this case to small and medium-sized businesses (SMBs) — is expected to increase by a compound annual growth rate of 27 percent, according to the document.
The total credit balances originated at the end of June period and fiscal year stood at 1.7 trillion RMBs for consumers and 422 billion RMBs for small businesses, as the company originates loans in turn underwritten by partner banks. Roughly 98 percent of credit balances originated through Ant’s platform was underwritten by partner financial institutions or securitized.
For the six months ended in June, said Ant in its listing documents, 39 percent of revenues came from the credit tech business, growing almost 60 percent over the same period in 2019.