The champagne was already in the fridge, investors were rubbing their hands and the global economy was preparing to rejoice in this disastrous year of the coronavirus. Everything was already prepared for this Thursday to occur the largest IPO in history, that of Grupo Ant in the parks of Hong Kong and Shanghai. As the financial and technology (‘fintech’) arm of Chinese e-commerce giant Alibaba, Ant planned to raise $ 39.67 billion (€ 33.994 billion) with its public offering of shares. Clearing some clouds in the dark economic horizon of the pandemic, it was going to surpass the record of 29.4 billion dollars (25.195 million euros) set in December by the Saudi oil company Aramco.
But by surprise, the Chinese authorities suspended the operation on Tuesday. after meeting the day before with the top managers of the company: the founder, Jack Ma; its president, Eric Jing, and its CEO, Simon Hu. According to the newspaper “South China Morning Post”, owned by Alibaba, the new rules envisaged by Chinese financial regulators entail a “significant change” for the Ant Group’s businesses, preventing it from meeting the requirements for its IPO in Hong Kong and in the Star Market index for tech firms that Shanghai launched a year ago in imitation of the Nasdaq. In a statement, the Shanghai Stock Exchange justified the suspension for “force majeure matters such as changes in the supervision of financial-technological companies.”
Creator of Alipay, the mobile payments application that 700 million Chinese use to buy almost everything, Ant Group is “sold” as a technology company. But your growing financial businesses, such as loans, insurance, and investment portfolios, have put the company under the scrutiny of the regime, especially after its announced IPO.
Although regulators had given their go-ahead at the end of October, an analysis of their accounts has revealed that 40% of their income, which amounted to 118.2 billion yuan (15,065 million euros) until September, comes from their financial businesses. Through its popular platform, Ant offers loans granted by a hundred banks, taking a commission of 30 to 40% of the interest with a minimum risk of capital. According to Reuters, only 2% of the 1.7 trillion yuan (216.67 billion euros) lent through Ant appear on their balance sheets, which in turn account for 21% of all loans granted by Chinese banks .
To avoid risks in the financial system due to excessive indebtedness that cannot be repaid, Beijing has prepared new regulations that seek to limit these “microcredits” online. Its draft, open for public review until December 2, foresees that online lending companies, such as Ant, provide up to 30% of the capital together with banks, which would undermine the profitability of their business. In addition, two of its subsidiaries that operate as investment portfolios, Huabei and Jiebei, will not be able to continue operating under the new regulation.
While waiting for all these details to be clarified, the surprising suspension of Grupo Ant’s IPO has shocked the financial markets. Dragging other companies, their parent, Alibaba, has suffered as the value of its shares on Wall Street fell by up to 9.7%, and the figure of its founder, Jack Ma, has been questioned.
Although Ma is the richest tycoon in China, his recent criticisms of the lack of innovation in the financial sector and his unseen ambition have not helped. In recent days, state media have warned of the danger of Grupo Ant becoming “too big to fail” and “bringing risk of contagion” to the financial system, urging regulators to “safeguard investors’ interests.” . In addition to apologizing to them, the Ant Group will have to return the money they had already anticipated for the purchase of their shares in Hong Kong and Shanghai. Although the company has promised that it will correct its activities to go public as soon as possible, it does not seem likely that it will be soon. Until that happens, the “business of the century” has become the “fiasco of the century.”