Ant Group, formerly Alipay, was supposed to have been the world’s biggest IPO raising $35bn and estimates suggesting a market value of around $315bn, but yesterday the exchanges in Shanghai and Hong Kong announced that the IPO is suspended due to changing regulatory rules without stating further details. It has since leaked that on meetings between Ant Group, China Securities Regulatory Commission and State Administration of Foreign Exchange, the company was told that it will be subject to laws governing financial holding companies including capital, leverage and liquidity ratios. In other words, Ant Group was trying to run a financial company without regulation according to the interpretation of the Chinese government and its agencies regulating the banking sector. Alibaba, the largest shareholder of Ant Group, shares are down 7% in Hong Kong trading stabilizing after opening down 10%.
It seems like a fair critique as the banking sector is an integrated part of the government’s policies through the credit impulse so Chinse government cannot have a privately-owned company running a larger and larger part of the money market and payment system in China. The discussions are at the highest levels of government due to the size of this IPO which according to estimates are oversubscribed 284 times. In our view the prestige for China in this IPO will make it come through with Ant Group complying to the government’s rules, but the timeline is obviously uncertain.