Move over Saudi Aramco, there’s a bigger IPO in town: inside Ant Group’s $34.5 billion offering

Monday 9th November 2020

Jack Ma’s Ant Group set the price of its shares for its dual initial public offering on Monday, making it the biggest listing of all time. The group is splitting its stock issuance equally across Shanghai and Hong Kong, issuing 1.67 billion shares in each city. The valuation of the company has risen to $313.37 billion, making it more valuable than the likes of Goldman Sachs. The listing is larger than that of its sister company, the Chinese e-commerce brand Alibaba, which raised $25 billion when it started trading on the New York Stock Exchange. The IPO follows a trend of listing activity in Shanghai and Hong Kong, as tensions between the US and China continue to brew. The listing also comes after the news that U.S. authorities are considering restrictions on Ant Group’s payment system which could bring forward a host of regulatory issues for the company.

Investors were scrambling to buy shares in the company, with even the Singaporean sovereign wealth fund believing that it would have to settle for only $1bn in Ant Shares. After the Shanghai side of the book-build was completed, banks triggered a “greenshoe option” to increase the offering after retail bids exceeded the value of the shares by more than $2.8 trillion. A greenshoe option is a provision in an underwriting agreement that grants the underwriter the right to sell investors more shares than anticipated if the demand for a security issue proves higher than expected.

What is the Ant Group?

Ant Group (formerly known as Ant Financial and Alipay) is the sister company of the e-commerce giant Alibaba Group. It is the world’s highest-valued FinTech, and the most valuable unicorn company. It is best known for owning China’s largest digital payment platform, Alipay.

The trend towards the East

Ant Group’s listing will bring the total raised on the mainland Chinese exchange from primary and secondary listings to $52.6 billion this year, a 200% increase from last year. It exceeds the $38 billion raised on the NASDAQ. As mentioned previously, there has been an increasing trend of investment and listings in Shanghai and Hong Kong due to tensions with the US, but also because of their fast economic recoveries in the past months. Hong Kong is a well-established finance hub in the region and is seen as a good middle ground to bridge the gap between the West and China (despite political tensions in the territory).

Update

Shanghai Stock Exchange halted the listing a day after Beijing regulators announced draft regulations that would force Ant to rethink their business model. The new regulations would require internet platforms to provide at least 30% of the funding of their loans and to cap loans at about $45,000. Ant currently funds only 2% of its total loans. Based on estimates that Ant has Rmb1.8tn in consumer loans outstanding, Morningstar has calculated that it will have to hold Rmb540bn in loans on its balance sheet, indicating serious business restructuring before listing.

Whether the suspension of the IPO is due to regulatory matters or whether it is due to Jack Ma’s recent controversial comments at the Bund Summit in Shanghai is up to debate. After pointing out the potential inefficiencies and shortcomings of financial regulators and banks in the state, it would be no surprise if the suspension was a political move from Beijing as a warning.

There is an interesting comparison here between the way the four major tech companies in the West have been treated comparatively, with regulators struggling to make substantive moves to limit their influence.