Ant’s Shanghai-HK IPO on hold, fintech rules tighten

Jack Ma, founder of Alibaba Group, invites 66 medical workers to a hot pot restaurant in Hefei, Anhui Province on June, 6, 2020. These Anhui medical workers had helped fight the #COVID19 in Hubei Province. (Photo: China News Service)

In a move that sent shockwaves across the country, Chinese stock bourses on Tuesday night announced to suspend a planned dual listing by fintech giant Ant Group, which had been widely expected to become the world's biggest IPO ever, as part of what experts call a broad push to tighten regulations in the financial sector, particularly online lending, and protect investors' interests.

The swift change also put the spotlight on a debate between regulators and the public over a balance between financial innovation and risk control.

Just 36 hours ahead of a scheduled debut in Hong Kong on Thursday, the Shanghai Stock Exchange (SSE) surprised the market with an announcement that it would suspend Ant Group's listing in the STAR Market. Roughly an hour later, the fintech giant's Hong Kong IPO was also announced to be shelved.

While many were still digesting the news and speculating about the reason behind it, a commentary by the official Economic Daily newspaper seemed to offer a clear explanation behind the decision to hold off the IPO: Protecting the interests of consumers and investors.

Suspension

The SSE said in a statement that "major issues", including the summoning of Ant Group's actual controller and management on Monday by the nation's top financial regulators, and Ant Group's report of changes to the regulatory environment, meant Ant Group might fail to meet "listing conditions or information disclosure requirements". The listing was originally scheduled to go ahead in Hong Kong on Thursday. The date for its Shanghai offering had yet to be announced.

Ant Group, backed by Jack Ma, billionaire founder of China's e-commerce platform Alibaba, was set to sell shares in both bourses that raise more than $30 billion.

The IPO suspension signifies the regulatory resolve to protect investors' interests, and it's imperative for Ant Group to rectify its plans in accordance with regulatory demands, read the commentary by the Economic Daily, posted briefly after the SSE's decision.

Upholding the principles of "openness, fairness and equitable treatment" for the capital market, the regulators, after identifying problems, ought to resolutely correct and cope with the issues. Ant Group has completed IPO pricing and its listing involves the vital interests of a multitude of stock investors, said the commentary, stressing that the postponement is to better safeguard the interests of financial consumers and maintain the sound development of the capital market over the long term.

Monday's summons came after Ma's controversial remarks regarding traditional banks and innovation at the Bund Summit in Shanghai in late October.

Not long after the dual-listing suspension was made to the public, Ant Group said in a statement that it "sincerely apologizes to you for any inconvenience caused by this development."

"We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges," the fintech pioneer said.

Shares of Alibaba plunged nearly 8 percent at the opening of the US market on Tuesday.

Ant Group is reportedly being asked to clarify on its business model, financial innovations, measures to protect users' private data the platform has collected, and other issues. It is also possible that the fintech venture could be asked to restructure its business, analysts say.

Tightening regulation

The suspension most likely has something to do with new regulations aimed at cracking down on illegal activities in the financial market to prevent major financial risks, according to a former official at a financial regulator.

"Top officials have just signaled that they would immediately roll out new regulations for various areas, including online lending, financial markets and personal information protection -- all of which related to Ant Group's businesses. And that might have some impact on the firm's IPO," the former official, who spoke on condition of anonymity, told the Global Times on Tuesday.

A meeting of the Financial Stability and Development Committee under the State Council, China's cabinet, on Saturday said that it would strengthen financial regulations to crack down on all types of irregularities in the financial market and adopt a "zero tolerance" attitude toward illegal activities.

While the prospects for Ant's IPO remain unclear, the official said that after new documents are filed to address remaining regulatory concerns, "theoretically" the IPO would move forward.

"I don't think the IPO would be completely called off because this will have some major impact on the market," the official said.

Nonetheless, with regulators putting the brakes on what was anticipated to be a blockbuster deal, there have been worries that Ant Group's valuation could be significantly downsized after it regains the regulatory nod sometime in the future.

What is the immediate impact on investors who were prepared for an exciting fintech rally to be led by Ant Group's listings? Those who considered themselves lucky to have won online bids for units of Ant Group's offerings, and deposited money in anticipation of huge gains on the opening day, are now worried about how and when they will get their deposits back.

Too much innovation that overburdens the regulatory regime could result in a fintech bubble which, in the worst-case scenario, drags the nation's internet-savvy population into a nightmare of false prosperity that might go bust, some experts have warned.

With the regulators spelling out a tougher stance on fintech innovations, including proposed tighter rules for online personal loans, financial Big-Techs — increasingly seen as rivals to traditional banks — will inevitably be subject to more supervising curbs, experts said.

Fintech giants, albeit differing from traditional financial institutions in business structures, are still in essence financial service providers, Lian Ping, head of Zhixin Investment Research Institute, told the Global Times on Tuesday.

Nonetheless, while traditional institutions have long been falling under the purview of financial regulators, higher risk tolerance has been a focus in policy responses to fintech, Lian said. Regulatory tolerance has led to an outpouring of innovations, but regulators have shown themselves to be taking a tougher stance.

In a sign of China's fintech prowess, the nation's mobile payment market totaled $414 billion in 2018, while the marketplace for mobile payments was only worth $64 billion in the US, according to a report by China International Capital Corp.

China holds an edge in commercial applications of the digital economy, in that the nation has more application scenarios, a huge market and fewer obstacles to innovation, according to the September report.