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Home / Business / Inside the bizarre revelation of Jack Ma’s $ 35 billion IPO

Inside the bizarre revelation of Jack Ma’s $ 35 billion IPO

(Bloomberg) – Mid-level officials leave China’s richest man waiting as they prepare for a meeting that will spark worldwide financial shockwave.

It was Monday morning in Beijing, and Jack Ma was summoned to a meeting room at the China Securities Regulatory Commission just days before he was about to bring Ant Group Co. to the public at the biggest stock market launch of all time.

When the officials finally spoke, they ignored the fun and delivered an ominous message: Ant days were eased by the government and minimum capital requirements were over. The meeting ended with no discussion of Ant̵

7;s IPO, but it’s a sign that things might not go as planned.

Unraveling the subsequent $ 35 billion stock sale that plunged Ma’s fintech giant into turmoil, offering a clear reminder that even China’s most famous businessman inevitably the whims of a Communist Party that is gradually squeezing the second largest power in the economic world under the leadership of Xi Jinping.

Among the questions that arise when international investors try to learn about the chaotic 72 hours: Why did China beat Ant’s IPO at the last minute after months of meticulous preparation? And what will the future look like for one of the country’s most important companies?

Interviews with regulators, bankers and Ant executives give some answers, although even insiders say that only China’s top leaders can. be confident about what happens next. Most of those who spoke to this story did so on condition of anonymity to discuss sensitive issues.

Ma’s meeting in Beijing on Monday sparked a behind-the-scenes scramble between Ant and its bankers for more clarification by Chinese regulators. While CSRC officials signaled at a time when they were unaware of any changes to the IPO plans, the regulator’s puzzling social media post later that day was of an “interview. surveillance questionnaire “with Ma elusive from Hong Kong to New York.

By Tuesday afternoon, the mood worsened as whispers of delays began to spread in Shanghai. At around 8pm, the city’s stock exchange called Ant to announce that the IPO would be suspended.

When the official statement came out less than an hour later, it cited a “significant change” in the regulatory environment but provided some additional details as to why the authorities would delisting two days before the stock is scheduled to begin trading.

At a hastily arranged meeting between Ant bankers and the CSRC later that evening, officials pointed out that the company needed new capital and licenses to comply with many of the regulations for The financial group came into effect in early November. There was no discussion of how quickly an IPO could be restarted.

An Ant spokesman said the need for additional capital and the new license was not discussed during the meeting but declined to provide further details.

One concern among regulators is that stricter rules may not have been fully disclosed in Ant’s prospectus. In addition to the new financial group regulations, the government released a draft strict regulation for consumer loans on Monday, asking Ant to provide at least 30% of capital for loans that This company guarantees banks and other financial institutions. Ant currently only finances 2% of its loans, with the remainder being appropriated or packaged in securities by third parties.

Some officials said it’s better to stop listing at the 11th hour than to let it go on and leave investors at a loss.

That opinion was shared by at least one institutional money manager who said he practically begged an Ant executive for an IPO allocation during a meeting at the Mandarin hotel. Oriental in Hong Kong. Now that he has a clearer idea of ​​legal risks, he is relieved that the share sale has been shelved.

The CSRC said in a statement Wednesday that preventing Ant’s listing “rushed” in a changing regulatory environment is a responsible move for markets and investors.

Some Chinese followers, however, have an alternative theory for why Xi’s government is acting the way it did: they want to send a message.

Ma, a well-respected former teacher in China, has faced countless unusual criticism in state media after he downplayed the country’s financial rules for obstructing revert to innovation at a conference in Shanghai on October 24th. His remarks came after Vice President Wang Qishan – a close relative of Xi – called for a balance between innovation. and strong regulations to prevent financial risk.

Andrew Batson, China research director at Gavekal Research, wrote in a report: “It appears that, intentionally or not, Ma has openly challenged and criticized the Chinese government’s approach to regulation. finance.

The weekend before Ma was summoned to Beijing, the Financial Development and Stability Committee led by Deputy Prime Minister Liu He stressed the need for fintech companies to be regulated.

In a sign, the authorities could continue to put pressure on Ant, people familiar with the matter said Wednesday that regulators plan to prevent banks from using the platform. Online loans from fintech companies. The directive is at the heart of Ant’s commission-based lending model, which generated about 29 billion yuan ($ 4.4 billion) in revenue in the six months ending June.

Any proposal for banks to stop using their platform is unproven, said Ant.

Some investors are preparing for tougher times in both Ant and the rest of Ma’s business empire. Shares of Alibaba Group Holding Ltd., which owns about one-third of Ant, fell more than 8 percent on Tuesday in New York with its biggest drop in five years. Ma’s decline reduced his fortune by nearly $ 3 billion to $ 58 billion, dragging him down to No. 2 on China’s rich list after Tencent Holdings Ltd.’s Pony Ma.

The IPO incident has also sparked greater concerns about China’s commitment to transparency as it tries to attract international investors.

On Tuesday, confusion about the suspension caused a series of calls to Ant’s bankers from money regulators. The disappointment in some cases is clear: Just an hour or two before the suspension announcement, Ant’s investor relations team is still trying to confirm the attendance of a post-IPO gala at Hong Kong. One of the company’s biggest foreign investors predicts that this wave could damage confidence in China’s capital markets in the long run.

The day Jack Ma becomes a nightmare for Ray Dalio: Shuli Ren

It could also have a spillover effect on Hong Kong, which has its status as a leading financial center, that has been questioned amid increasing Beijing’s intervention. It is estimated that nearly a fifth of the city’s population has registered to buy Ant shares; instead, many have planned a windfall stuck in paying interest costs on futile margin loans.

“The lack of transparency reminds us that ‘the Chinese way’ remains,” said Fraser Howie, author of Red Capitalism: The Fragile Financial Funds of China’s Extraordinary Rise. full of problems. “

For Ant himself, it is unlikely that a suspension of the IPO will deal a fatal blow. The company has 71 billion yuan in cash and equivalent as of June and is one of China’s most important organizations. The last thing the authorities want is the destabilizing distrust of a business that plays an important role in the national financial system.

The more appropriate risk for Ant is a dramatic decline in growth and sky-high valuations. New Chinese regulations will force the company to act more like a traditional lender and less like an asset-light tech services provider to the financial industry. That would almost certainly mean a lower price to earnings ratio for a stock if it were eventually listed.

Also looming is the introduction of China’s central bank digital currency, which risks eroding Ant’s dominance in payments. It may also affect other business activities of the company. Ant’s credit platform, for example, uses a huge repository of payments data to gauge the financial strength of borrowers who often lack collateral or official credit history.

All of that would be bad news for shareholders who pushed Ant’s value to $ 315 billion – higher than JPMorgan Chase & Co., but it could suit party managers and leaders, who people worry that Ma’s creativity has grown too large, too fast.

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