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Thursday, December 03, 2020

Explained: What is the Ant Group, and why is their IPO suspended?

Ant Group IPO: The suspension, seen as a measure to rein in Jack Ma, was done after a meeting between the regulators and the company's top executives.

Written by Aashish Aryan , Edited by Explained Desk | New Delhi | Updated: November 6, 2020 1:00:54 pm
Hong Kong stocks swung between gains and losses after Chinese regulators scrapped Ant Group Co.'s $35 billion initial public offering, and as investors digested early results in the U.S. election. Photographer: Lam Yik/Bloomberg

The scheduled initial public offering (IPO) of Ant Group on Thursday has been delayed for now, after its plans of listing on the Shanghai and Hong Kong’s stock exchanges were thwarted by authorities. The company had hoped to raise up to $37 billion from the market, in an IPO that would have been the world’s largest, beating the last year’s $29.4 billion listing of Saudi Aramco.

The listing was suspended after the regulators had a meeting with Ant Group founder Jack Ma and other top executives of the company.

What is the Ant Group?

In 2004, Ma’s Alibaba Group, which owned China’s largest online retail platform Alibaba, started to build out a super fast payments platform, which it said would enable its users to make payments easily.
The third-party digital payment app, named Alipay, however, surpassed all expectations and gained millions of users in a very short time. The app now has close to more than a billion users, according to reports, with over 730 million of them active on a monthly basis. In order to capitalise on the various offerings of Alipay, Ma spun off the app and brought it under a company called Ant Financial. The company was later re-christened as Ant Group.

Over time, Alipay, Ant Group’s number one offering had, apart from being an payment facilitator for Alibaba users, also ventured into personal retail lending, wealth management and insurance. The Ant Group thus, even though founded by Ma, is different from the Alibaba Group.📣 Click to follow Express Explained on Telegram

Also read | Jack Ma’s wealth drops $3 billion after Ant Group IPO freeze

Why did the regulators in Shanghai and Hong Kong suspend the IPO?

In China, lending is a very tightly regulated state subject, with the government and regulators being very uncomfortable with the idea of third-party technology driven apps such as Alipay venturing into the consumer lending business.

In October this year, Ma criticised China’s state machinery’s financial regulations “outdated” which were stifling innovation in the sector. The comments are said to have irked top leaders of the Communist regime, who have expressed concerns about how banks have tied up with micro-lenders such as Alipay.

The IPO was first suspended by Shanghai stock exchange, called the STAR market, which prompted the group to suspend the Hong Kong leg of the listing. The suspension, seen as a measure to rein in Ma, was done after a meeting between the regulators and Ant Group’s top executives.

The company later said that the listing was suspended as there had been a “significant change” in the regulations related to online lending. China, meanwhile, also published new norms for online lenders and micro-lending by apps such as Alipay.

What happens now to the IPO plans of Ant Group?

For now, the Ant Group will have to change its working practices in order to satisfy the authorities if it wishes to float a new IPO. One of the changes, according to reports, will have to be about the company being more transparent on its disclosure and other requirements such as controlling the amount of micro-lending it does every month.

The Ant Group, reports said, is also likely to stay put on its plans to float an IPO and will seek guidance from the older Alibaba Group on how to negotiate and navigate the tough regulatory environment of institutional lending in the Chinese market.

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