China suspends Ant Group’s $37 billion listing

China has suspended Ant Group’s $37 billion listing on Tuesday, thwarting the world’s largest stock market debut with just days to go in a blow to the financial technology firm founded by billionaire Jack Ma, Reuters reported.
Ant Group IPO

The Shanghai stock exchange said it had suspended the company’s initial public offering (IPO) on its tech-focused STAR Market, prompting Ant to also freeze the Hong Kong leg of its dual listing scheduled for Thursday.

This followed a meeting with China’s financial regulators on Monday during which Ma and his top executives were told that Ant’s lucrative online lending business would face tighter scrutiny, the Reuters report said.

The Shanghai bourse described Ant’s meeting with financial regulators as a “major event” which, along with a tougher regulatory environment, may cause Ant to be disqualified from listing.

In China, analysts interpreted the move as a slap down for Ma, who had wanted Ant to be treated as technology company rather than a highly regulated financial institution.

“The Communist Party has shown the tycoons who’s boss. Jack Ma might be the richest man in the world but that doesn’t mean a thing. This has gone from the deal of the century to the shock of the century,” Francis Lun, CEO of GEO Securities, said.

Ant is trying to establish if it needs to disclose more information to the Shanghai exchange about its relationship with regulators, or if the bourse expects it to resolve all its issues with the regulators, which would take much longer.

Reuters reported last month that regulators scrutinised banks that used Ant’s technology platform excessively for underwriting consumer loans as part of a drive to curb risks in the country’s financial sector.

The tougher regulatory focus on Ant’s cash cow and rapidly growing consumer lending business had emerged as a key concern for investors in the IPO, despite the company’s attractiveness as a financial technology player.

Ant originates demand from retail consumers and small businesses and passes that on to about 100 banks for underwriting, earning fees from the lenders with minimal risk to its own balance sheet.

Ant’s consumer lending balance was 1.7 trillion yuan ($254 billion) at the end of June, or 21 percent of all short-term consumer loans issued by Chinese deposit-taking financial institutions. Only 2 percent of the loans it had facilitated were on its balance sheet, its IPO prospectus showed.

Ant was set to go public in Hong Kong and Shanghai on Thursday after raising about $37 billion – including the greenshoe option of the domestic leg – in a record IPO that had attracted leading global investment firms.

It was also a sensational draw for mom-and-pop investors in China and Hong Kong who bid a record $3 trillion, equivalent to the annual economic output of Britain, while for the Hong Kong leg retail investors borrowed heavily from banks to buy shares.

Ant apologized to investors for any inconvenience, adding it would give details on the suspension of its Hong Kong listing and applications for refunds as soon as possible.

“We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.”

Alibaba said it would support Ant to adapt and embrace the evolving regulatory framework.

CICC and China Securities Co, co-sponsors for Ant’s STAR IPO, did not immediately respond to requests for comment.

U.S. banks JPMorgan, Citigroup and Morgan Stanley are co-sponsors of Ant’s Hong Kong IPO along with CICC.