What Is Ant Financial IPO?

Ant Financial’s plans to go public via a $35bn IPO (at a valuation of $250bn!) in Shanghai and Hong Kong may have hit an ‘optical’ roadblock considering the US State Department’s inclination to include its name to its trade blacklist (the so-called “Entity List”).

What Is the History?

Ant Financial (rebranded as “Ant Group” in May 2020) is an affiliate of Alibaba Group (which owns a 33% stake in the former). In fact, Alibaba’s growth and success is closely tied with Ant’s domination in Chinese consumer finance. How? Well ecommerce on Alibaba drove customers payments through Alipay (an Ant Financial app), and vice versa.

With payments and a solid base through Alibaba, Ant expanded into wider fintech — cross-selling everything from lending, insurance, to asset management to its customers, demonstrating the good old flywheel effect (like Amazon).

So How Wide Are We Talking?

In July 2020, Alipay claimed to cross 1.3 billion annual active users.

Last year, it handled around 110trn yuan ($16trn) in payments, about 25 times more than Paypal.

As of March 2020, Ant Group’s wealth management unit facilitated 4trn yuan ($570bn) worth of assets under management.

Entering the Big Leagues

In 2014, Alibaba launched its very own IPO in the New York Stock Exchange, the biggest of its time (raising $25bn).

In June this year, Alibaba raised $12.9bn by listing in Hong Kong.

Now, with the proposed listing of Ant Group in the twin markets of Asia, the Group is aspiring to raise $35bn, topping Saudi Aramco’s record $29bn sale in 2019. If this happens, Ant’s market capitalisation may surpass biggies like Bank of America and Novartis AG.

The Catch-IPO

One needs to understand that there are multiple players with interests involved in this proposed launch. Especially multiple American players.

The first category is the Trump administration, which has been at loggerheads with China over a host of issues ranging from the pandemic, trade rules, allegations of corporate espionage (Huawei, Tiktok) etc.

With an impending Presidential election, the US government is disenchanted with the possibility of a massive Chinese IPO success, particularly in light of increasing threats of data theft, digital surveillance, sharing customer information with Chinese companies etc.

The second category comprises US banks (Citigroup, JP Morgan, Morgan Stanley) who are chief sponsors of the IPO looking to profit by as much as $17.5bn for themselves.

It’s especially aggravating for them in light of the pressing regulations of Shanghai’s Science and Technology Innovation Board (STAR), which mandate the banks to buy between 2% and 5% of the shares sold. If the administration puts the screws to this launch, the banks are in for major losses.

What Is the Legal Competence of the US to Act on This?

As of now, there are merely deliberations ongoing on whether to include Ant Group in the Entity List.

The Entity List makes it more difficult for US firms to sell high-tech items to blacklisted companies. Now, if you add a telecoms giant like Huawei to this list, it’s a huge blow for them. However, inclusion of a fintech giant like Ant is more indicative of the ongoing global dynamics.

Also, one way the US government can enforce this blacklist is by using a 2019 order and prevent the IPO from happening to protect the digital supply chain. Alternatively, it could be done via another executive order, along the likes of those that banned TikTok and WeChat.

Even though the courts could grant temporary injunctions against the above orders, it could take a long time and depreciating market value for Ant Group to greenlight the IPO, if it was actually blacklisted.

Possibilities of Ant’s Out-Listing

The US State Department obviously doesn’t have jurisdiction in Hong Kong or Shanghai. However, a branding into the Entity List might plaster the proverbial “Scarlet A” across Ant Group’s masthead.

There’s actually precedent for this when a Chinese AI firm — Megvii Technology — failed to clear a hearing to be listed on the Hong Kong Exchange. Owing to the trade blacklist, they were unable to explain the merits of their suitability for an IPO.

Rest assured, there’s more to be witnessed in this story as news about Ant raising its valuation target to $280bn for the IPO has surfaced imminently.

(Originally published October 17th 2020 in transfin.in)