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World's biggest IPO halted as Ant Group feels Shanghai's bite
IN a shock decision, the Shanghai Stock Exchange (SSE) has suspended Ant Group's listing - just two days before the world's largest initial public offering was to take place in the city and in Hong Kong.
The cancellation of the US$34 billion dual listing comes after Ant Group co-founder Jack Ma and two top executives were summoned to a meeting with regulators on Monday, according to reports.
In a statement posted on SSE's website, the exchange said: "Due to the material matters reported, your company may no longer meet the conditions for offering and listing, or the requirements for information disclosure."
Market watchers expressed shock, saying that calling off an IPO at such a late stage is highly unusual.
"I don't ever remember a listing being delayed this late in the IPO process. I don't think investors will be panicking just yet but it's very unusual," Jasper Lawler, head of research at forex broker London Capital Group, told The Business Times.
He said the authorities could be "extra cautious" since it's supposed to be the biggest IPO ever, although he concedes that the wording is "a bit of a worry".
"When you hear 'major issues', the reason for the delay is definitely not a typo. Ant is spun out of Alibaba and there were big questions about its offshore structure when it first listed in the US," Mr Lawler said.
Stephen Innes, chief global markets strategist at AxiCorp, said the move "feels like a regulatory clampdown" from China, in a bid to prevent the Chinese fintech titan from gaining control of the financial networks in the country.
He added that the bigger such "monopolistic type of tech companies" get, the more financial control they gain on overall markets, given how markets are moving online.
A Reuters report cited two unnamed sources that said the trio from Ant had been informed that the company, notably its consumer lending business, will face tougher scrutiny over matters including capital adequacy and leverage ratios.
This comes as some regulators were "surprised" by Ant's business and financial figures, including the scale and profitability of its credit business, details of which were disclosed for the first time in its IPO prospectus in late August, Reuters reported the first source saying.
But the implications of the suspension goes beyond just the delay of the group's listing. Edward Moya, senior market analyst at Oanda in New York, said that this has also changed the whole business outlook for Ant Group.
Given how the IPO was expected to be one of the key drivers of the company, the current state of events has dampened investors' confidence on its profitability and growth, which will "cripple the outlook for the next couple of years", he added.
On a larger scale, uncertainty over the Chinese market may also arise.
Having successfully contained the spread of the coronavirus in the country, China's economy has since seen strong signs of recovery.
But the suspension of Ant Group's IPO will stand to be a "very bearish driver into one of the bright spots" of the world's economy, said Mr Moya. He added: "It's very poor for the IPO stage, for Asia right now… I think everyone was associating this with one of the very positive dominos in the bull case for global activities."
In the event that Ant Group does get the green light to go ahead with its IPO, Terence Wong, chief executive of Azure Capital, believes the initial market euphoria may be dampened by this incident.
Mr Wong believes this may be a form of pushback from the government against the outspoken Mr Ma, who is "very candid" with his comments.
After all, Mr Ma had been critical about local and global regulators for stifling innovation, according to a recent Bloomberg report, saying: "Good innovation is not afraid of regulation, but is afraid of outdated regulation."
Mr Wong said: "You would think that for national interest, they would like to support rather than to (suspend the IPO). But I guess they're trying to send a signal, not only to the wealthy, but the ultra wealthy in China, that they put national interest ahead of anything else."
Ant has been hit with a wave of fresh rules in recent months as China tightens control over online lenders and companies that operate across multiple financial business lines. The measures have included capital and licensing requirements, a cap on loan rates and limits on Ant's use of asset-backed securities to fund loans.
On Monday, the banking regulator released draft rules that would force Ant and other operators of online lending platforms to fund a greater share of the loans they offer together with banks.
Additional reporting by Uma Devi