How Jack Ma Ant-agonized Chinese Regulators and Scuppered the Ant IPO

By Monika Ghosh and Sharon Lewis

Ant Group’s listing was set to go down in history as the world’s largest ever IPO, until its plans went awry less than 48 hours from its debut. Here’s what went wrong – and how.

In late July this year, billionaire Jack Ma announced that he was preparing to list his company, Alibaba spin-off Ant Group, in Shanghai and Hong Kong. The dual-listing was supposed to take place on November 5, and the company’s A-shares in Shanghai and H-shares in Hong Kong had attracted US$3 trillion in bids from retail investors, The Economic Times (ET) reported.

Its shares were oversubscribed by 870X, with bids worth $2.85 trillion received on the STAR market. In the Hong Kong market, too, bids worth $167.7 billion were received, equivalent to 389 times the number of shares on offer, the ET report added.

Ant Group was going to make history, and investors were raring to grab a piece of it. But in what would have been a historic week for the company, it made headlines for all the wrong reasons*.* In one swoop, Chinese authorities dashed the biggest ever IPO less than two days before it was due to go public.

Here’s a timeline of how Ant’s blockbuster IPO unraveled.

October 13: Potential Conflict of Interest

DealStreetAsia (DSA) reported that Chinese regulators were investigating a potential conflict of interest in Ant Group’s planned IPO. This was because anyone looking to invest in it was sent through an unconventional route.

To invest in Ant Group, retail investors had to buy into five Chinese mutual funds that were investing in the IPO. However, they could buy into these funds through only one third-party channel – Alipay, Ant Group’s flagship payments platform. Traditionally, retail investors can invest in IPOs through banks and brokerages, but this arrangement pushed them aside and gave Alipay an upper hand.

Despite the extra hoops to jump through, over 10 million prospective Ant investors battened on to the mutual funds. However, new guidelines introduced by Chinese regulatory authorities stipulated that mutual fund distributors must avoid conflicts of interest from selling products related to their existing and potential businesses.

Just as the anticipation for the much-awaited IPO was building up, the investigation began, and delayed it indefinitely.

October 18-19: Ant Group gets approval for Shanghai and Hong Kong listing

A day after receiving a regulatory nod from the China Securities Regulatory Commission (CSRC) for its Hong Kong listing, Ant Group won the final approval for the listing from the Hong Kong stock exchange.

The fintech unicorn was set to issue about 11%-15% of its outstanding shares. Ant Group stood to raise $35 billion at a $280 billion valuation at the least, Bloomberg reported at the time. Ant Group planned to issue shares evenly across both the exchanges.

October 25: Billionaire Ma slams the Chinese financial system

Jack Ma criticized Chinese regulators during his speech at the Bund Summit in Shanghai. In his bold speech, Ma called the Basel Accord a “club for the elderly” and referred to Chinese banks as pawnshops. He spoke about China’s tight regulations (that were stifling innovation in his opinion) to a crowd that included former and current governors of the People’s Bank of China, the Chinese central bank.

This touched a nerve. The speech became a deal-breaker for Chinese officials. But Ma would not discover this for another week.

October 26: Bourses reveal details of Ant Group’s proposed IPO

According to documents released by the two bourses, Ant Group was pricing its shares at HK$80 (roughly $10.30) each share. The New York Times (NYT) estimated that the pricing pushed Ant Group’s valuation to about $310 billion.

The South China Morning Post, meanwhile (which is owned by Alibaba), pegged the valuation in the range of $313 billion to $318.50 billion in the case that the over-allotment option would allow the underwriters to issue extra shares. Thus, the IPO would have made Ant Group larger than JPMorgan Chase, the largest bank in the U.S.

Inflows of cash into Hong Kong preceding the listing led the Hong Kong Monetary Authority to intervene in the banking system more than 20 times in October, injecting over HK$200 billion in order to maintain the currency’s tight exchange band with the U.S. Dollar.

November 2: Ma summoned by the central bank, banking watchdog, and other regulators

Just days before what was set to be a record-breaking IPO, Ma, along with Ant Group executives Eric Jing and Simon Hu were summoned to a meeting with Chinese authorities.

The meeting included the People’s Bank of China, the banking watchdog China Banking Insurance Regulatory Commission, CSRC, and the State Administration of Foreign Exchange.

The CSRC statement, released on Weibo, termed the meeting a “yuetan,” or a regulatory warning. The same day, Chinese regulators announced new draft rules. The rules intended to increase oversight of online lending platforms like Ant Group.

The draft rules are open for public feedback till early December. They require online lenders like Ant Group to fund at least 30% of their loans in conjunction with banks. According to a Bloomberg report, Ant Group currently funds only 2% of its loans out of its balance sheet. The rest are funded by third-parties or packaged and sold as securities.

Little else was said about the meeting or what was discussed. TechNode, however, quoted research company Trivium Co-founder Andrew Polk as saying, “Ant came out with its tail behind its legs.”

But, regardless of what happened at the meeting, it was clearly of significance because of what followed.

November 3: The biggest IPO in history gets canceled

One day after the closed-door meeting, the Shanghai Stock Exchange pulled the plug on the Ant IPO.

A statement from Ant Group explained that the IPO had not met listing qualifications or disclosure requirements. It attributed the sudden suspension of the listing to the earlier meeting between Ant leadership and Chinese authorities. The statement also referenced “recent changes in the Fintech regulatory environment,” presumably referring to the new draft rules. The company also announced that it would be suspending its Hong Kong listing.

After news emerged of the Ant IPO suspension, Alibaba, which owns a third of the company, lost 8% of its market capitalization on the New York Stock Exchange. The loss amounted to nearly $60 billion.

The aftermath of Ma’s terrible week

As an immediate result of the failed IPO, Ma saw $3 billion disappear from his net wealth. But Chinese stocks emerged as winners from the saga. Cash initially intended for the Ant IPO found its way to other Chinese tech companies, including ecommerce giants Meituan and JD.com.

Ant Group has also begun refunding $2.8 trillion and $167.7 billion to bidders in Shanghai and Hong Kong respectively.

Though early reports regarding the IPO suspension were swathed in confusion, media seem to have reached the conclusion that Ma’s inflammatory speech was the turning point.

To Chinese officials, it was a “punch in the face,” according to a source from Reuters. State regulators and Chinese leaders wasted no time in clamping down on the company, launching investigations into Ant Group’s businesses. An official from the Chinese Central Bank justified the suspension as a measure to safeguard investor and financial consumer interest.

But in the bigger picture, Chinese authorities have grown increasingly wary of online lending activities and the invasive customer data collection practices of fintech companies like Ant Group. China’s de-risking efforts date as far back as 2016 – regulators have been increasing their oversight of fintech startups to control risk and cap rising consumer debt. This has forced Ant Group to adjust its business from time to time to keep up with the regulatory changes.

Additionally, Chinese companies have been looking at home listings considering recent changes to U.S. regulations. But Ant Group’s IPO debacle has signaled to Chinese companies that home markets are a gamble too. It remains unlikely that Ant Group will be able to resume its IPO anytime soon.

For years, Ma has symbolized self-made entrepreneurs in China. The country’s media dubbed the time period of his meteoric growth as the “era of Ma Yun.” But following his inflammatory speech, Chinese social media altered the tagline for Ant Group into a Chinese idiom which translated to “Jack Ma has now been tamed.”

Entrepreneurs in China are usually let off the hook when they agree with the authorities and deliver satisfactory apologies. In 2018, for example, ByteDance issued an apology after Chinese regulators clamped down. However, according to TechNode, Ma’s meeting with Chinese regulators ultimately failed to soothe things over. This led to the indefinite suspension of Ant Group’s IPO.

For Ma, the fiasco may have served as a lesson in humility, but in real terms, it’s a hard lesson that cost him $3 billion and a record-breaking IPO.

Header image by World Economic Forum / Ciaran McCrickard on Wikimedia Commons

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