The suspension of Ant Group’s initial public offering (IPO) in November came out of the blue. Everything seemed to be in place for the company to record the world’s biggest ever debut listing. But the Chinese regulators had other ideas.
Pulling the plug just days before launch has led to much speculation over what provoked this move. Was it a political power play? Was Jack Ma, the company’s founder, becoming too outspoken? Or was the fintech industry becoming too big to manage?
The IPO was shelved after the regulator issued new guidance for online-only fintech lenders, the sector Ant Group falls into, bringing them in line with stringent banking regulation for the first time.
Previously, these companies have been able to grow exponentially thanks to a light touch approach to regulation, and an operating model which saw companies package up consumer loans and offload them onto the banks. Now, they will have to hold significant capital to cover the lending and will be restricted in their ability to cross-sell. There were also concerns over the level of data these companies were holding on their customers, which have also been addressed in the new rules.
While the microlenders will have up to three years to implement the new rules, in the short term it could stifle smaller lenders which are unable to meet the requirements, and may prevent Ant Group from looking to IPO in China again until it can meet all of the new regulatory requirements. The regulator has stepped up before to stop emerging forms of fintechs from growing too big, with the decline of the peer-to-peer lending space notable in how regulations have effectively killed this activity off in China.
Even if it does comply with the rules, Ant Group may decide to IPO elsewhere in the meantime, as its parent company Alibaba did in New York in 2014, in what was then the biggest IPO to date. If the group decides to take its listing elsewhere, the Chinese stock exchanges are unlikely to be hurt for too long. Even without Ant Group, Shanghai and Hong Kong stock exchanges saw a record year for funds raised in 2020.
