Capital Markets

The end of Ma: how the biggest IPO went bust

Just a few weeks ago, we were expecting Ant Group to launch the biggest IPO in history with a value of $37bn. In a dramatic turn of events however, the Chinese government imposed a swathe of new regulations aimed at preventing the IPO from taking place just the night before. This has left Jack Ma, the founder of Ant Group, in jeopardy, as he must now navigate the politically sensitive landscape of the Chinese financial markets.

How the Ma empire was built

Jack Ma, the third richest man in China, is probably best known for starting the e-commerce giant Alibaba which is still currently the second IPO, raising $21.8bn. On the side of this, he founded a company called Alipay, a mobile and online payments platform, which has now evolved into the largest such platform in the world, ahead of even Visa and Mastercard. This was one of China’s ultimate signs of technological dominance, being home to the world’s most valuable unicorn, with the potential to ease tensions in Hong Kong by showing its openness to commercial activity. Ma was the ultimate symbol of the self-made Chinese tech entrepreneur, with his beginnings as an English lecturer exhibiting to the world that China had similar channels of growth for the individual as the West.

The IPO of Ant Group was meant to be spectacular, with the company valued at an unprecedented $316bn. It was meant to be a symbolic event, illustrating the increasing economic and technological growth of China, and sending a message that China’s system may be politically different, but it could achieve just the same results as traditional democracies. The company has amassed a huge user base of over 730 million monthly users for Alipay. Additionally, this capital could have been used to tackle some of the regulations that the government was beginning to introduce, preventing the need to turn to alternative sources.

So, where did it all go wrong?

The Chinese government in the end decided to introduce a range of new regulations directly impacting Ant Group, meaning some form of restructuring would be required before it could go public. Consequently, the Shanghai Stock Exchange removed its listing, and it has been indefinitely postponed. Why would the Chinese government pass up on this opportunity for international bragging rights? It seems they were worried about Ma gaining too much influence, and their action serves as a reminder that the Chinese state always has ultimate control of its markets. He most certainly did not help himself by speaking out against state-owned banks for their lack of innovation and behaving as “pawn shops” by requiring collateral for loans, which unsurprisingly did not go down well. The difference between this and Alibaba is that the financial nature of Ant Group makes it much more of a strategic industry than e-commerce, which drew much closer scrutiny for the Ant Group IPO.

The current political regime in China, led by Xi Jingpin, is trying to strike a fine balance between opening up to the rest of the world for global participation and influence, while also maintaining strict domestic control, and it seems that the risk of challenging political influence to the state outweighed the benefits of the Ant Group IPO. The new rules that have been introduced require internet platforms to provide at least 30% of the funding of loans, which is a big step up from the 2% that Ant Group currently provides. It will take time and compliance from Ma to reach a stage where they will actually be able to float the group on public markets, and even then, the company is likely to be valued much lower due to the restraining regulations.

The future of Ant Group

A quote circulating on the Chinese internet sums this up nicely – “There is no so-called era of Ma Yun, only Ma Yun as part of the era.”. This was a very difficult day for Ma, who lost £2.3bn of his personal wealth in a period of a few days as Alibaba shares plunged, but he will have likely learnt his lesson about the consequences of criticism of the state. As for China, it may have reinforced its image as a no nonsense state, but this act is incredibly damaging to its international reputation, especially given the fact that it has the opportunity to start afresh with the US as Trump leaves office. We can now only hope that over the coming months that a deal will be reached, and markets will finally be given access to this tech giant.


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