Insight: Secrecy and speed: Inside Ant Group’s unusual IPO process

China Securities Co

02/10/2020 24:00

By Kane Wu, Julie Zhu and Scott Murdoch
    HONG KONG, Oct 2 (Reuters) - Ahead of what's likely to be
the world's largest initial public offering, China's Ant Group
Co Ltd is asking lead bankers to personally sign confidentiality
pacts and pressing some investors to explain why they should be
allowed to attend marketing meetings, sources familiar with the
matter said.   
    In doing so, Ant is following a highly unusual process that
draws on some of the tactics its former parent and affiliate
Alibaba Group Holding Ltd  BABA.N  previously used. 
    Other unique measures taken by Ant include dividing up the
underwriting work for what could be a $35 billion offering among
several banks such that no one firm has the full picture of the
process, four sources with direct knowledge of the matter said.
    Three of the sources said the main underwriters are also
discouraged from working on assignments for competitors.
    While banks typically sign non-disclosure agreements when
taking on underwriting assignments, companies rarely ask bankers
to personally do so as well. The lead banks usually also run the
entire process and competitive concerns are handled through
Chinese walls that separate teams working on different deals. 
    Ant's  IPO-ANTG.SS  measures, which have not been previously
reported, are frustrating some bankers and investors, and
sometimes sowing confusion in the market, three of the sources
said. 
    Taken together with what has been a fast pace of regulatory
approvals for the IPO, they pose the risk that the offering will
not get sufficient scrutiny, some lawyers and banking experts
said. 
    Ant and Alibaba declined to comment.
    Philippe Espinasse, an Asian capital markets consultant and
former banker, said there is merit in tightly controlling the
process for such a large transaction. 
    "This is not only to ensure that the banks focus on getting
the deal done, and getting it done well, but also to create a
sense of competition both among the underwriters and investors,"
Espinasse said.
    A person close to Ant, whose status as the world's biggest
unicorn and China's top fintech group has resulted in a rapid
rise in valuation, said all the banks had the same information
and access to data about the company.
    
    FRAGMENTED PROCESS
    In its $25 billion IPO in 2014, Alibaba divided up the work
so that no single external adviser had the complete picture of
its offering, Reuters reported at the time. https://www.reuters.com/article/us-alibaba-ipo-banks/with-no-bank-in-charge-alibabas-bankers-learn-to-work-together-idUKKBN0H424K20140909
 Then, during its secondary listing in Hong Kong last year, it
also made advisers personally sign confidentiality agreements.
    Ant is planning a dual-listing in Shanghai and Hong Kong.   
Three of the sources said bankers at firms with the lead
underwriting roles had been asked to sign confidentiality pacts.
    The Hong Kong leg of the IPO is being sponsored by China
International Capital Corp (CICC)  3908.HK , Citigroup Inc
 C.N , JPMorgan Chase & Co  JPM.N  and Morgan Stanley  MS.N . 
    Ant's listing on Shanghai's Nasdaq-style STAR Market is
being led by CICC and China Securities Co (CSC)  6066.HK .
    CICC, Citigroup, JPMorgan and Morgan Stanley declined to
comment. CSC did not respond to a request for comment. 
    The fragmentation of the process has sometimes caused
difficulties. 
    Some banks on the deal, for example, did not know that the
IPO's Hong Kong leg would not have any cornerstone investors
that usually commit to buying large stakes and hold shares for
some time, said four sources with direct knowledge of the
matter.
    Some of these banks were preparing to market orders for
their clients and had to switch them to a different kind of
allocation instead, two of the sources said. 
    The banks have also had to sometimes choose between Ant and
deals for the fintech giant's competitors. 
    CITIC Securities  600030.SS  dropped out of an IPO of rival
JD Digits, an affiliate e-commerce company JD.com  9618.HK ,
before it was granted a role in Ant's listing, three sources
familiar with the matter said.  urn:newsml:reuters.com:*:nL8N2G12Q9 
    CITIC did not respond to Reuters request for comment.  
    In another case, food delivery giant Meituan Dianping
 3690.HK  believed JPMorgan could not carry on the work of its
credit rating ahead of a potential bond issuance as it primarily
competes with a business controlled by Ant and Alibaba, two
sources with knowledge of the matter said.
    JPM and Meituan declined to comment. 
    Investors' participation in the marketing roadshows for the
IPO is also being tightly managed. A Hong Kong-based fund
manager said he was told by one of Ant's banks that he had to
complete a one-page document outlining his interest in the
company before he was allowed to attend. 
    The fund manager, who is an existing Alibaba shareholder,
said that he had not come across that condition in any other
IPOs in this region. 
    Reuters could not determine whether Ant was asking all
potential investors to do the same. 
    
    QUICK REVIEW
    Ant's control over information comes as the regulatory
process around the listing has moved quickly. The company, which
filed its preliminary prospectus in late August, is expected to
be listed in October.
    Exchanges and regulators scrutinise the IPO prospectus and
question the company about key issues including its financials,
corporate governance, shareholders and risk factors as part of
the review.
    The Shanghai Stock Exchange cleared the listing in 24 days,
compared with roughly four months for most IPO candidates that
obtained approval in September, according to public disclosures
from the exchange.  urn:newsml:reuters.com:*:nL4N2GF2JA
    The Hong Kong exchange is about a month into its review.
Public disclosures from the bourse for other listings that
obtained approval in September show it took about four months,
on average. Ant expects to go public by the end of October,
sources have said.
    The person close to Ant said it had been responding to the
Hong Kong exchange's queries and had no control over the pace of
the process.
    Fraser Howie, an independent commentator and author of
several books about China's financial system, said the speed of
approvals reflects the importance of the deal for China and Hong
Kong. But it could be problematic for investors.
    "It's what everyone wants, so we'll rush it through," Howie
said. "It bodes badly for those who care about maintaining
standards. It sends a bad signal."
    Shanghai stock exchange and China Securities Regulatory
Commission did not respond to requests for comment.
    The Hong Kong exchange said it has robust and
well-established rules and processes for listings. 
    "In evaluating applications, the Exchange seeks to ensure
strong investor protection and maintain market quality," it said
in a statement.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Ant and top 10 IPOs globally by value     https://tmsnrt.rs/30grw2h
With no bank in charge, Alibaba's bankers learn to work together
   https://www.reuters.com/article/us-alibaba-ipo-banks/with-no-bank-in-charge-alibabas-bankers-learn-to-work-together-idUKKBN0H424K20140909
Goldman Sachs joins syndicate for Ant IPO of up to $30 bln
-sources     urn:newsml:reuters.com:*:nL8N2G12Q9 
China's Ant takes another step towards $35 bln IPO with
registration move     urn:newsml:reuters.com:*:nL4N2GF2JA
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 (Reporting by Kane Wu, Julie Zhu and Scott Murdoch; Additional
reporting by Samuel Shen and Josh Horwitz; Editing by Sumeet
Chatterjee, Paritosh Bansal and Edward Tobin)
 ((sumeet.chatterjee@thomsonreuters.com; +852 3462 7757;))