The postponement of the massive Ant Group initial public offering appeared to be the result of Jack Ma, the group’s largest shareholder, speaking too boldly about his desire to bring financial freedom to Chinese businesses and consumers, pushing back on an antiquated and tightly controlled state run banking system. Alibaba stock fell hard on the news Tuesday.
Ant Group postponed what was set to be the largest initial public offering ever. Alibaba (BABA) was to have a roughly 33% stake in the IPO, which was expected to begin trading on Nov. 5. It was planned as a dual listing on Shanghai and Hong Kong stock exchanges, expected to raise $34.5 billion
The decision to suspend the IPO came after Shanghai exchange officials said it would halt the listing due to the company’s inability to fulfill conditions amid changes in the regulatory environment.
Ant Group operates a suite of financial products including the widely used Alipay digital wallet in China. In addition, it operates one of the world’s largest money market funds.
Alibaba Stock Action
Alibaba stock dropped 8.3%, near 285, during afternoon trading on the stock market today, falling below its 50-day moving average.
While the overall impact on the China IPO market was unclear, the focus for now remains on how Ant Group will move forward to resolve the issues to get the deal out the door.
The Shanghai Stock Exchange decided to suspend the IPO listing following a meeting between the China Securities Regulatory Commission with Ma, along with Ant Chief Executive Eric Jing.
Following that meeting, the commission issued a statement.
“Your company has reported significant issues such as the changes in financial technology regulatory environment. These issues may result in your company not meeting the conditions for listing or meeting the information disclosure requirements,” the commission said, as reported by various media groups.
Shanghai Stock Exchange officials then decided to suspend the listing, followed by the Hong Kong Stock Exchange. Alibaba, through its subsidiary Zhejiang Tmall Technology, planned to buy 730 million class A shares. As a result, this will allow Alibaba to maintain its roughly 33% stake in Ant Group.
Alibaba co-founder Ma would effectively control 50.52% of Ant due to the company’s share structure. Moreover, Ant was set to surpass the $29.4 billion raised by Saudi Aramco with its IPO last year, making it the largest of all time. The third largest IPO would be Alibaba.
Dustup With Chinese Authorities
The dustup with Chinese authorities follows aggressive comments made by Ma last weekend. Ma is the co-founder of Alibaba and spun off Ant. He has championed bringing financial services to small businesses and Chinese citizens in general. Ma says small businesses face difficulties from China’s state-dominated banking system. Ant’s smartphone-based system allows consumers to make payments, borrow money and invest.
Analysts say Chinese officials wanted to make clear to Ma who was really in charge. On Monday, the China Banking and Insurance Regulatory Commission proposed new rules for online lenders, requiring more disclosure.
“So we’re getting the brakes tapped on the IPO,” Brendan Ahern, chief investment officer at KraneShares, said in a video interview with IBD. KraneShares provides a $5 billion exchange traded fund that invest in China and emerging markets. Asked how the timeline looks going forward, Ahern noted it remains a big debate right now.
“It could be that (Ant) just needs to refile the regulatory documents, addressing the new regulations on the business. That’s a pretty easy fix,” he said. “At the same time they could have potentially burned their relationship with the regulators.”
But there is incentive for China regulators to get the IPO out the door, Ahern went on to say.
“I’m leaning more toward a shorter term solution because for China, this was a big moment and was going to be the largest IPO ever. It’s not good for the regulators and the brand of China,” he said.
An Apology From Ant Group
Ant Group issued a statement, as reported by CNBC.
“Ant Group sincerely apologizes to you for any inconvenience caused by this development,” the statement said. “We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges. We will overcome the challenges and live up to the trust on the principles of: stable innovation; embrace of regulation; service to the real economy; and win-win cooperation.”
The origins of Ant Group came from Alipay, a mobile and online payment platform comparable to PayPal (PYPL) with about 870 million users.
Alibaba spun out Alipay into a separate company in 2011. It later renamed itself Ant Financial, then changed it again to Ant Group.
Alibaba stock is up 33% this year.
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Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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