- Despite strong investor interest, Ant's IPO has been shelved on regulatory grounds. Its business model is now at risk
- Regulatory uncertainty could hurt fintech dealflow in China, to the benefit of other centres, like New York
- Jack Ma’s other interests such as Alibaba could face a tougher environment. Rivals — eg JD.com — will fill any vacuum
Keep your friends close and your enemies closer (Sun Tzu)
During Ant Group’s pre-IPO period, we suspect investors’ top-down fears may have centred on issues like heightened US-China tensions. Meanwhile, the US presidential election likely played a big role in setting the issue timetable. However, it is matters closer to home that have ultimately dealt a fatal blow to the transaction.
Press reports indicate that a meeting between Jack Ma and senior Ant executives (Eric Jing, CEO, and Simon Hu, Chairman) with Chinese regulators yesterday raised several problems. Today’s news suggests these matters could not be immediately resolved. It remains to be seen whether the transaction can be resurrected at a later date.
We think there are several key takeaways from today’s developments:
Investor appetite is strong. Ant’s leading position in a large and growing economy is clearly of interest to a broad swathe of institutions, with investors seemingly willing to apply a sizeable premium to comparable listed peers to participate in the transaction. Grey market indications at the start of the week pointed to a significant first-trading-day gain for the shares, reflecting a high level of oversubscription for the offering.
China’s regulatory framework is in flux. As a ‘techfin’, Ant’s business does not sit easily within current regulatory structures. The firm works closely with traditional financial institutions, charging them fees for access to its reliable, user-friendly platform and 1bn+ customer base. Regulators are still working out how to address such a business model, but press reports suggest Ant may in future be required to hold more assets and more capital on its own books, which could dampen the firm’s profitability and growth potential.
Fintech deal pipeline now at risk. China has one of the more vibrant fintech ecosystems on the planet, not just in terms of its scale but also the diversity of its companies, products and business models. It is one of the global leaders in up-and-coming areas like blockchain, for example, and Chinese unicorns are already worth more than their US counterparts. Regulatory uncertainty could stymie deal appetite from both investors and executives.
New York may breathe a sigh of relief. A successful Ant listing in Hong Kong and Shanghai could have dented New York’s credentials as the premier listing location for technology sector giants. The US financial capital already hosts high-profile Chinese companies like Baidu and Pinduoduo, as well as dual listings like Alibaba and Tencent; conceivably these could have de-camped back to China if the Ant IPO had gone smoothly.
Powerful vested interests are at work. Although Ant has grown by bringing financial services to previously underserved segments of the population, it is now of a scale that poses a threat to traditional financial institutions. We suspect some of these firms may not be too upset by Ant’s current difficulties.
Nobody’s star should shine too brightly. Ant founder, Jack Ma, has become a global phenomenon, not only for his huge wealth and business success but also for his down-to-earth mindset and his philanthropy. However, as others have found, fame can prove dangerous. In China, the Communist Party still calls the shots.
Alibaba may be caught in the crossfire. If Jack Ma becomes persona non grata within the Chinese establishment, expect Alibaba to encounter more difficulties in the future, whether from an operational perspective or concerning its plans to drive more value from its investments, such as its Ele.me delivery franchise. Rivals, for example JD.com, Meituan Dianping, Pinduoduo and Tencent, could try to fill any vacuum.
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