Corrected: UPDATE 5-China slams the brakes on Ant Group's $37 billion listing

China Securities Co

03/11/2020 13:24

(Corrects paragraph 4 to say... may cause Ant to be
disqualified, not disqualified)
    * Ant was due to list in Hong Kong and Shanghai on Thursday
    * Shanghai exchange first announced it had suspended the IPO
    * Move follows meeting between Jack Ma and regulators
    * Ant apologises to IPO investors for inconvenience caused  

    By Julie Zhu, Meg Shen and Greg Roumeliotis
    HONG KONG/NEW YORK, Nov 3 (Reuters) - China suspended Ant
Group's $37 billion listing on Tuesday, thwarting the world's
largest stock market debut with just days to go in a dramatic
blow to the financial technology firm founded by billionaire
Jack Ma.
    The Shanghai stock exchange said it had suspended the
company's initial public offering (IPO) on its tech-focused STAR
Market, prompting Ant  6688.HK   688688.SS  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, sources told Reuters.  urn:newsml:reuters.com:*:nL8N2HP0RL
    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.
    To revive its listing, 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, a person with knowledge of the matter said.
    At an event last month attended by Chinese regulators, Ma
said the financial and regulatory system stifled innovation and
must be reformed to fuel growth. He also compared the Basel
Committee of global banking regulators to "an old man's club".
    Ant believes the public criticism put Ma in the crosshairs
of regulators, the person said.  urn:newsml:reuters.com:*:nL1N2HF05N
    The suspension reverberated across markets. Alibaba Group
Holding  9988.HK   BABA.N , which owns about a third of Ant,
fell 9% in early U.S. trading, wiping nearly $76 billion off its
value, more than double the amount Ant was planning to raise.
    "This is a curve ball that has been thrown at us ... I don't
know what to say," said one banker working on the IPO. 

    SHARPER SCRUTINY
    With its unique business model and the absence of rivals in
China or elsewhere, analysts say Ant has mainly thrived as a
technology platform away from the banking sector's regulations,
despite its array of financial products.  urn:newsml:reuters.com:*:nL8N2HP652 
    But Beijing has become uncomfortable with banks increasingly
using micro-lenders or third-party technology platforms such as
Ant for underwriting loans amid fears of rising defaults and a
deterioration in asset quality in a pandemic-hit economy.
    Reuters reported last month that regulators had 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.  urn:newsml:reuters.com:*:nL4N2H0171
    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.  urn:newsml:reuters.com:*:nL4N2HO37J
    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% of all short-term consumer
loans issued by Chinese deposit-taking financial institutions.
Only 2% of the loans it had facilitated were on its balance
sheet, its IPO prospectus showed.
    "It's the right move to regulate what's essentially a
financial institution as their peers. And it's wrong not to do
that in the past, and the mistake is being corrected. It will
have a negative impact on pricing," said Zhong Daqi, founding
partner of Guangzhou Zeyuan Investment Management Co.
    Under draft rules published on Monday by China's central
bank and banking regulator, small online lenders must provide at
least 30% of any loan they fund jointly with banks.
    A banker in Hong Kong close to other Chinese fintechs said
those firms thought the new rules were tailor-made for Ant. The
banker said Ant may have to split its businesses and make
payments, micro-lending and wealth management separate units.
    
    SORRY FOR THE INCONVENIENCE
    Ant was set to go public in Hong Kong and Shanghai on
Thursday after raising about $37 billion - including the
so-called 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.
    An official at a Chinese state-backed investment firm, which
is also an existing investor in Ant, wondered whether it would
be "politically correct" to make fresh investments in the
company given its regulatory run-in.
    Starting as a payments processor in 2004, Ant quickly built
an empire by offering users short-term loans credited within
minutes, as well as selling insurance and investment products.  
    China's state-backed Economic Daily newspaper said in a
commentary that the IPO suspension showed regulators'
determination to protect the interests of investors and the most
pressing matter was for Ant to carry out "rectifications".
    "Ant may be just falling victim to their own size and
success," said Alex Sirakov, senior associate at advisory firm
Kapronasia.
    Ant apologized to investors for any inconvenience, adding it
would give further 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  3908.HK  and China Securities Co  6066.HK ,
co-sponsors for Ant's STAR IPO, did not immediately respond to
requests for comment.
    U.S. banks JPMorgan  JPM.N  and Citigroup  C.N  declined to
comment, while Morgan Stanley  MS.N  did not immediately respond
to a request for comment. The three Western banks are
co-sponsors of Ant's Hong Kong IPO along with CICC.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
EXPLAINER-Ant juggernaut jackknifes on $37 billion road to
market     urn:newsml:reuters.com:*:nL8N2HP652
INSTANT VIEW-China halts Ant Group's mega IPO     urn:newsml:reuters.com:*:nL8N2HP5TA
BREAKINGVIEWS-Chinese regulators add Ant to cursed mega-IPOs   
 urn:newsml:reuters.com:*:nL4N2HP31P
Abrupt halt of Ant Group's mega-IPO leaves investors guessing   
 urn:newsml:reuters.com:*:nL1N2HP1XW
Alibaba shares plunge    https://tmsnrt.rs/328LHQC
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Meg Shen and Julie Zhu; Additional reporting by
Scott Murdoch, Kane Wu and Alun John in Hong Kong and Cheng Leng
and Yingzhi Yang in Beijing; Writing by Brenda Goh and Sumeet
Chatterjee; Editing by Pravin Char, David Clarke and Alexander
Smith)
 ((meg.shen@thomsonreuters.com; 852-28436901; Reuters Messaging:
meg.shen.thomsonreuters.com@reuters.net))