The Dramatic Twist in the Ant Financial IPO

In today's Finshots, we talk about Ant Financial and how its plans to go public went awry at the last moment.

The Story

Before we get to the IPO, some context on Ant Financial and its genesis.

Back in 2003, Jack Ma, the founder of Alibaba, was still trying to get people to buy and sell stuff on his online marketplace Taobao. The goal was audacious and Ma had all the right ingredients in place. However, adoption rates were still a sticky point. Buyers did not trust sellers to honour their obligations and sellers were sceptical of seeing a lot of online demand. After all, the platform only acted as an intermediary. So if you wanted to transact on Taobao, you had to pay the seller directly (online) and then meet in real life to receive your order — A huge transactional barrier. And in a bid to bridge the trust deficit, the company decided to act as custodians. They promised buyers they would hold their money in an escrow account and vouched to release the payment to sellers only after receiving confirmation that the products had in fact been delivered. This eliminated a lot of uncertainty surrounding these transactions and adoption rates soared almost overnight. The company called its latest payment solution, Alipay. However, they still had to figure out several key logistical challenges since payments/transfers still involved other legacy intermediaries — Chinese banks, for instance.

And so in a bid to make transactions truly seamless, the company worked with one of China's leading banks. As an article in HackerNoon notes —

The Alipay team joined forces with the Commercial Bank of China to build an online version of the custodial transaction pipeline. They also invited experts from Sun Microsystems to develop this new payment processing infrastructure. Alipay sits at the frontend with the initial payment gateway and account verification. It then sends the payment data to the bank’s network, which verifies that the user has enough balance and processes the rest of the transaction. Alipay was lucky that a prominent, traditional Chinese financial institution was willing to collaborate with them.

Soon after, they made their online payments solution available to other merchants and vendors. Within a few years, the company also allowed customers to store funds in their Alipay account. And as people started to treat Alipay as an online wallet of sorts, the company also offered customers the ability to earn interest on their savings. And for the first time ever, the unbanked and the underbanked population of China finally had a product that could meet their demands. Currently, Ant Financial’s Money Market Fund Yu’e Bao manages funds exceeding $150 billion as a result of people ploughing their savings into Alipay accounts. That’s not all. The company also offers a marketplace for insurance providers, credit scores, loans and other wealth management services.

Meanwhile, this rapidly growing financial division was spun off as a separate entity and today it’s recognized the world over as Ant Financial (Ant Group). Which brings us to the IPO. The company is massive right now. Over 80 million merchants use the app. Over 711 million monthly active users transact with the app. The company made revenues of close to $10 billion in the six months leading up to June 2020 and $3 billion in profits during the same period. So clearly, the time was ripe for a public offering. And when Ant Financial put up ~10% of the company for sale in a bid to raise $34.5 billion from the public, everybody thought the IPO was going to be the largest public offering ever.

But then, amidst all the hype, this happened.

China’s regulators have foiled the largest stock sale in global finance as they called a halt on the November 5 debut of Ant Group’s shares on the Shanghai and Hong Kong exchanges, less than 48 hours before the highly anticipated start of trading.

A meeting earlier this week between Ant Group’s senior executives and China’s top financial regulators led to “significant change” to Ant’s business environment, which may result in the fintech company not fulfilling the listing requirements or disclosure rules…As a result, the trading debut of the company would be postponed, Ant Group said in its statement, adding that it would announce further details “relating to the suspension … and the refund of the application monies” as soon as possible — Excerpts from South China Morning Post

What happened you ask?

Well, the story goes that the Chinese regulators were particularly miffed after Jack Ma publicly criticized the financial and regulatory ecosystem back home. Apparently, this put him in the crosshairs. But why would they force Ant to suspend listing after all this hoopla?

Well, we don’t know yet. But until Ant can work with the regulators and meet their requirements, it’s unlikely we will see the company going public anytime soon. As one expert noted — “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”

Until then…

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