Ant Group’s IPO was supposed to be a crowning achievement for Chinese business.
The deal was set to be the largest in history, easily overshadowing Saudi Aramco’s $29.4bn listing. It was a showcase of one of the largest, most exciting companies in China. It was proof that China had the clout to go it alone, ignoring US pressure on the company. It was even a clear statement of China’s ability to balance competing interests: the deal was split between the Hong Kong stock exchange and the Star board, an upstart technology bourse in Shanghai.
Those achievements have now been delayed, perhaps for good.
On Monday, Ant founder and majority shareholder Jack Ma, alongside two other senior executives, was called in for a meeting with the country’s most powerful regulators – the central bank and regulators for banking and insurance, the securities market and foreign exchange. The precise content of the discussion remains unclear but the following day Ant pulled its IPO, citing a “material change”.
It was already clear that Ant was facing a tougher regulatory environment. China’s central bank and its banking and insurance regulator said on Monday that they were planning to tighten rules on the microfinance market, where Ant is a major player. They published draft rules for the industry on Monday, asking for feedback by December 2.
There’s a good chance Ant will make another attempt at a listing later, after working out its gripes with regulators. As GlobalCapital points out, the company will be helped by the fact that many of its large investors were set to be state-owned institutions.
But what caused the break? The truth is: no-one can be sure. China’s political and economic system can be opaque even at the best of times. Since Ant is referring journalists to vague stock exchange announcements, and the government has said nothing, outsiders are being forced to speculate.
A common explanation – and a compelling one – points to remarks made by Ma in October, when he criticised the country’s domestic banking system for being too old-fashioned. (He reportedly compared banks to pawn-shops.) That will no doubt have irked the Chinese Communist Party, which puts senior figures in charge of the country’s large state-owned banks as well as its regulators. As one investor told Asiamoney, the move was to “remind people who is the boss”.
That may be the case. But the consequences of this display of power appear to be overwhelmingly negative.
China has swapped a record-breaking IPO for a record-breaking failure. The company has promised to give investors back their $34bn, in what must be the largest refund in history
The deal should also raise serious questions about the consistency of the regulatory environment.
China has been attempting for years to attract foreign investors, launching numerous schemes to allow funds and other investors in the debt and equity markets. It has also put serious work into the launch of the Star board, the country’s version of the Nasdaq exchange and a listing venue that promised to win back tech giants from overseas markets. Foreign investors and domestic technology executives will both now be wondering how much they can rely on China’s regulators.
The clearest argument of how misguided this all is – and the one that has the best chance of convincing party officials – is to consider who will be celebrating at this news. Chinese regulators? Not likely; this is a Pyrrhic victory at best. Ant’s domestic rivals? Don’t bet on it; this will only increase their uncertainty about their own listing plans.
The real celebrations will be taking place in the United States, among China’s harshest critics. According to a Reuters story in mid-October, the Trump administration has considered adding Ant to the ‘entity list’, which would block it from trading with American companies. US senator Marco Rubio had previously pushed the White House to find a way to block Ant’s listing, a rather ambitious move for a politician talking about a foreign company listing outside of the United States.
It turns out Rubio got his wish. That may be a cause for celebration in parts of Washington. It should raise real questions in Beijing.
This piece was first published in Asiamoney.