Markets

Why Beijing is stopping Ant Financial’s IPO

A.There was no shortage of warning shots from Beijing before the record IPO of the Chinese fintech company Ant Financial. Now the government is getting serious: the Chinese regulator has canceled the initial listing planned for Thursday in Shanghai. The second IPO in Hong Kong was also canceled. In both places, Ant wanted to raise a total of $ 37 billion, more than any other company when it was first listed. The initial public offering of the Saudi Arabian oil company Aramco had brought in around 8 billion dollars less at the end of last year.

But on Tuesday, the day after four financial regulators called Jack Ma, the founder of Ant and its former parent company Alibaba, along with other Ant managers for a discussion behind closed doors, the Shanghai Securities and Exchange Commission cited “significant changes” in the regulatory environment the Hangzhou company could not meet the requirements of the stock exchange.

On Monday, a group of regulators led by the non-governmental central bank Ma Ant chairman Eric Jing and Ant chairman Simon Hu asked about the IPO. However, the government had not disclosed what the content and the result of the conversation were.

As a result, on Tuesday there was a broad discussion on the Chinese Internet about Ant’s small-loan business, which is seen by many as an important reason for the rapidly increasing household debt in China.

Payment app with credit at the push of a button

In the west, Ant is best known for its Alipay smartphone app, which 711 million customers in China use according to the prospectus. It has often been described that with this QR code, from chewing gum to cars, practically all products and services of daily life can be paid for. However, Ant earns most of its revenue from credit functions like “Huabei”, which is incorporated into Alipay and which translates as “just spend it”.

This means that Alipay customers can borrow 10,000 yuan (€ 1,280) within 3 seconds – at an interest rate of 0.5 percent per day. Calculated over the year, this results in an interest rate of 18 percent, which is much more than with the classic bank and in China the conditions of a very expensive credit card.

Jack Ma, who directly and indirectly holds the controlling majority in Ant, likes to portray Ant as an internet company and not as a bank. At Alibaba, Ma retired from all management responsibilities two years ago. Observers had suspected that the Chinese government was under pressure on the opinionated billionaire as the reason for retiring at the age of 55. Two weeks ago in Shanghai, however, the entrepreneur demonstrated that Ma continues to like to be involved in China’s economy. There he railed against the international capital requirements for banks and said that “many of the problems in the world” stem from “only talking about risk control”, but not about “development” and the “opportunities of young people and developing countries”. Ma also etched against China’s state banks on stage.

In Shanghai financial market circles it had been said that Beijing would not simply accept the appearance of Ma, which was perceived as wide-legged there. After all, there had already been reports a week and a half earlier that the stock exchange supervisory authority wanted to examine how Ant had sold some of its own subscription shares to its own customers at gag conditions via its own Alipay platform on the Chinese mainland. On Tuesday, however, the assumption was expressed in the circles that the IPO would come in the end. After all, China’s state pension fund NSSF and even state television wanted to acquire shares in Ant.

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