Newsflash | Listing Suspension of Ant’s IPO - Articles & Commentaries

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05 November 2020

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Shock Suspension

Reports confirmed that regulatory authorities in China had put the brakes on Ant Group Co’s US$35 billion listing in Shanghai and Hong Kong, derailing the world’s biggest initial public offering (IPO). In this Fundamental Flash, we discuss the implications of the suspension to Ant’s business and our portfolio positioning.

Regulatory Roadblock

The suspension came on the heels of a rare joint meeting with Ant’s co-founder Jack Ma who was summoned to a meeting with the country’s top regulatory bodies including the China Securities Regulatory Commission (CSRC) and China Banking and Insurance Regulatory Commission (CBIRC).

Market speculation is that there could be some unfavourable events that took place since the granting of listing approvals, as both the CSRC and CBIRC were the very same authorities that had also approved Ant’s listing.

A consultation paper was released recently by the CBIRC with regards to proposed changes in policies affecting small and micro business loans in China. This could negatively impact how Ant operates its lending business moving forward. The lending business (aka CreditTech) makes up sizeable portion of Ant’s business contributing up to 39% of its revenue as of 1H’2020.

Following such regulatory changes, Ant’s listing approval was suspended by the Hong Kong and Shanghai stock exchange. It was reported that the stock exchange operators had requested that Ant file a disclosure of impact to its business to take into account these new regulatory changes before it can be granted listing approval again.

Ant has always portrayed itself as a technology firm that had maintained close communication with regulatory authorities. Though with this latest surprise, the relationship dynamic between Ant, regulators and its business partners could see changes.

Outlook & Positioning

We do not expect much disruption to Ant’s existing business as of now. That said, Ant’s growth moving forward could very much be constrained given the new capital requirements for its lending business. Also, there is a likelihood that we have just seen the start of regulatory impact on Ant’s business.

Whilst the latest news regarding its listing suspension is certainly negative on a net basis, we don’t believe Ant’s value is zero. As of now, Ant is still a company that is expected to deliver a net profit of RMB50bn in FY2020 as a valuable technology company.

Ant has unique access to the vast user base of Alibaba as part of wider technology conglomerate in a bourgeoning market. Regulatory pressure is also not new to the group, as it has transformed and adapted through various policy changes in the past 16 years.

It is uncertain whether Ant make an immediate effort to get listed again. It is rumoured that the company may take up to 6 months for it to get everything right before applying for listing again.

Alibaba which sits as one of our portfolio top holdings saw a knee-jerk reaction following the suspension of Ant’s IPO. However, Alibaba’s value is largely derived from its core e-commerce business and will likely see its share price stabilise soon. We remain comfortable with our portfolio positioning and will continue to stick with secular growth stocks like Alibaba that have multi-year growth prospects.

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