Jack Ma's future uncertain as China halts Ant Group's IPO

The $35-billion IPO of Chinese financial giant Ant Group Co, controlled by billionaire Jack Ma, has been halted for what the Chinese authorities call “shortcomings” in the company’s structure which “may require  overhauling”.

Ant dominates China’s payments market via the Alipay app. It also runs the giant Yu’ebao money-market fund and the country’s largest online consumer-lending platform. Other businesses include a credit-scoring unit and an insurance marketplace.

Ant Group Co, considered China’s answer to US’ JP Morgan, was to go public in Shanghai and Hong Kong. Jack Ma was summoned by regulators on Monday, and on Tuesday the IPO was abruptly halted.

The future of Ant Group Co and its celebrated founder-billionaire Jack Ma seems to be uncertain now with billions of dollars of investment in limbo and an IPO sealed.

Chinese authorities said “they had belatedly discovered an array of shortcomings that, by some accounts, might require the sprawling Ant to be overhauled”.

“The way I’d read it, it’s a deliberate public relations move,” said Sean Darby, chief global equity strategist at Jefferies. “This has happened before when companies appear to have become too big versus the state for the authorities’ liking.”

The financial technology company’s IPO would have given it a market value of about $315 billion based on filings — much bigger than JPMorgan Chase & Co and four times larger than Goldman Sachs Group Inc.

Beijing just yanked Ant Group's IPO to show Jack Ma who's really in charge https://t.co/93x7NdAwPs pic.twitter.com/KmcYJksYX1

— Eric Vanderburg (@evanderburg) November 4, 2020

“Ant Group sincerely apologizes to you for any inconvenience caused by this development,” the company said in a message to investors. “We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.”

The financial market reacted swiftly and strongly. Ma’s Alibaba Group Holding Ltd., which owns a third of Ant, plunged 7.1 per cent in Hong Kong, after falling by the most in almost six years in New York. Ma himself lost approx. $3 billion.

Ant Group’s IPO would definitely qualify as China’s biggest business success story. The phenomenal rise of Ant Group, an affiliate of Jack Ma’s Alibaba Group, has become the world’s largest financial technology company in a short span of time. However, Ma’s rise in financial might and as a global business leader has posed a threat to China’s state-run lenders and their political benefactors.

Chinese authorities didn’t give much detail about the reason for suspending the IPO, beyond saying that the much-anticipated debut couldn’t go ahead because there had been “significant change” in the regulatory environment.

The Ant Group has faced scrutiny in Chinese state media in recent days after Ma criticized local and global regulators for stifling innovation and not paying sufficient attention to development and opportunities for the young.

The IPO is unlikely to come out for about six months, and funds will be returned to investors in the meantime, news portal QQ.com reported, citing an unidentified person.

Millions of shares of the Ant Group were traded in the over-the-counter market prior to Ant’s the group’s debut.

Also read: Gurgaon court summons Alibaba, Jack Ma after ex-employee’s complaint

Ant, which was carved out of Alibaba in 2010, has been positioned as a champion of China’s economy and an example of how the Communist Party has allowed entrepreneurs — especially in the technology sector — to flourish within its top-down political system.

The Tuesday suspension may have a deep impact over China’s financial markets, even as President Xi Jinping tries to create stock exchanges that can rival the U.S.

An action was anticipated because Jack Ma was summoned to a rare joint meeting with the People’s Bank of China and three other top financial regulators. Ma was told his company would face increased scrutiny and be subject to the same restrictions on capital and leverage similar to banks.

Meanwhile, Ant Group’s IPO was on the verge of creating a new world record. It had attracted at least $3 trillion of orders from individual investors for its dual listing in Hong Kong and Shanghai, and in the preliminary price consultation of its Shanghai IPO, institutional investors subscribed for over 76 billion shares, more than 284 times the initial offering tranche.