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Brace for a post-euphoric Ant IPO swoon
[HONG KONG] Everyone and their cousin wants in on Ant's record-shattering US$34 billion initial public offering (IPO). The buzz has been palpable in Hong Kong, where fund managers report calls from distant relatives hoping to buy shares of Jack Ma's Chinese financial technology giant. Retail investors in the Asian financial hub placed orders worth US$168 billion while the Shanghai portion attracted bids from small investors worth US$2.8 trillion. The fear of missing out is a powerful drug, but a letdown potentially awaits.
Some of the demand can be explained by big indices. Creators MSCI and FTSE are expected to add Ant's Hong Kong shares within days. Investors tracking or benchmarked against them will be terrified of being left out of any gains from such a hulking constituent. This close to year-end especially, they would struggle to catch up. And year-end bonus deliberations loom large.
Hot mega-deals don't always immediately deliver, however.
Facebook's 2012 IPO is one example. Nasdaq glitches as trading began on the upsized US$16 billion deal didn't help. There were reports of selective disclosures, and apprehension - ultimately misguided - about the company's ability to make the transition from Web to mobile. The shares tumbled 10 per cent within two days. It took 14 months for them to climb back to their US$38 issue price.
Alibaba, Ant's one-third shareholder, provides another humbling reminder. In 2014, its US$25 billion New York IPO priced well below the top price estimates. The shares popped 38 per cent on the first day, but within a year they went from trading as high as 44 times expected earnings to half that multiple.
By most accounts, Ant's future looks promising. And yet it is poised to reach public investors with a market capitalisation of US$312 billion, imputing a valuation worth a punchy 31 times next year's forecast earnings. Trading is due to begin on Thursday. Broader skittishness amid the US election and regulatory crackdowns from Beijing are among the many risks.
Even if Ant eventually lives up to its mammoth expectations, there's good reason to brace for a shorter-term swoon.
Chinese financial technology company Ant priced shares for its US$34 billion initial public offering at HK$80 and 68.8 yuan apiece in Hong Kong and Shanghai, respectively, when it opened for orders on Oct 26.
Bids in Hong Kong far exceeded the US$17 billion of shares on offer within an hour. In Shanghai, small retail investors bid for 872 times the 20 per cent allotment initially available to them.
The shares are scheduled to begin trading on Nov 5.