China has suspended the record-breaking $35 billion stock exchange listing of Ant Group, a spinoff corporation of Chinese e-commerce conglomerate Alibaba, because regulators say changes in the financial tech regulatory environment may cause it to fail to meet listing requirements.
As such, analysts said the company’s current valuation target fails to reflect the country’s anticipated tightening of regulations on internet micro-lending.
Lu Suiqi, deputy chair of Peking University’s department of finance, said that China’s pending move on internet micro-lending will have a negative impact on Ant Group’s future business model – creating risk that he believes the Shanghai Stock Exchange was trying to flag after last week’s frenzied bidding for the company’s shares.
“Once the new regulation [on internet micro-lending] is implemented, its profit model will no longer sustain, which will lead to the downward revision of its valuation. If Ant (Group) were to go public as planned, its share prices may soon experience a free fall as its valuation would likely drop,” Lu told VOA on Wednesday.
Ant Group, formerly known as Ant Financial, began with the name Alipay in 2004 – a third-party online payment tool for Alibaba’s e-commerce transactions.
As of June, its flagship Alipay remains China’s largest digital payment platform, which serves more than one billion users and 80 million merchants with annual payment volume transactions reaching $17.6 trillion.
Ant Group has diversified into internet micro-lending businesses, totaling, as of June, $253 billion in uncollateralized consumer loans, which were charging as high as 15%, and lending $60 billion to small- and micro-sized firms.
The company was originally slated to go public on stock markets in Shanghai and Hong Kong on Thursday, issuing more than 3.4 billion new shares, priced at around $10 a share.
Ant Group’s initial public offering (IPO), the world’s largest, was set to raise $35 billion and boost its market value to more than $310 billion, higher than that of the Industrial and Commercial Bank of China, the country’s largest.
Demand for Ant Group’s shares was so strong last week that it had to close its institutional pre-order book ahead of schedule.
But on Monday, Jack Ma, founder of Ant Group’s parent firm, Alibaba, which owns 33% of Ant, and two other Ant executives, were summoned for “supervisory interviews” by China’s central bank, securities and foreign exchange regulators.
That coincided with the regulators’ move to begin the month-long solicitation of public opinions toward the country's draft regulation on internet micro-lending in preparation for the implementation of the new policy.
Meanwhile, the Shanghai Stock Exchange announced late Tuesday it would postpone the company’s listing plan, saying in a statement that major issues, including changes in the financial technology regulatory environment, may cause Ant Group “to fail to meet the issuance and listing conditions or information disclosure requirements.”
Ant Group then decided to suspend its dual listings, which likely triggered the 7.5 percent drop of Alibaba's Hong Kong-listed shares on Wednesday, after Alibaba’s New York-listed stocks closed 8.13 percent lower overnight.
The regulators’ sudden turnabout also followed Ma’s strongly worded criticism at the Bund Summit of Chinese bankers and regulators in Shanghai in late October, where he criticized peer banks as operating with a pawn shop mentality and called global banking requirements on available cash reserves stated in the Basel Accords outdated. The Basel Accords refer to a framework on regulating the banking industry. They are named after a city in Switzerland.
Peking University’s Lu said Ma’s blunt words were probably one reason regulators halted Ant Group’s $35 billion listing plan.
But more importantly, Ant Group’s unregulated micro-lending business model puts its banking rivals at an unfair disadvantage, which the professor said China’s regulatory agencies should quickly fix.
Lu added that the suspension will provide a cooling off period for investors to fairly assess Ant Group’s valuation if the company reportedly plans to stage a comeback in six months.
Oliver Rui, professor of finance and accounting at China Europe International Business School in Shanghai, said he believes Ant Group will restart its IPO at a later date.
But he agreed that the company’s over-lending practice is problematic.