Ant Group’s regulatory troubles in China could cost the fintech giant as much as $140 billion of its valuation, Bloomberg reports.
How We Got Here: Ant Group, owner of the popular Chinese payment app Alipay, was supposed to hit the public markets last week with a $35 billion dual-listing IPO in Hong Kong and Shanghai.
- At that number, it was poised to be the largest public offering ever, surpassing Saudi Aramco’s record $29.4 billion raise.
- Ant’s pre-IPO valuation was around $280 billion.
A Screeching Halt: China handed down new regulatory restrictions, effectively “putting the brakes” on Ant Group’s plans. It’s a surprising development, considering Ant had one of China’s “biggest success stories” and was to be a “pivotal step in the development of the nation’s fast-growing capital markets.”
Morningstar analyst Iris Tan said Ant could be facing a 25% to 50% downside in valuation. A decline that significant could push the fintech firm below its 2018 valuation when it raised capital from large funds such as Warburg Pincus LLC, Silver Lake Management LLC and Temasek Holdings Pte.
So what now? Well, it’s complicated.
- New regulations may force Ant to go back to the capital well and seek new national licenses to operate across the country.
- The reduced valuation gives billionaire Jack Ma and his firm less wiggle room to “carry out acquisitions as it looks to expand beyond its Chinese base and take the fight domestically to Tencent Holdings Ltd.”
- Domestically, it’s also a hit for investment banks like China International Capital Corp that were counting on a windfall of fees from Ant’s potentially record-breaking IPO.
We’ll keep an eye out for Ant Group’s IPO and valuation and let you know what we think.
My understanding is that the drama is based on the Chinese government wanting to maintain its control and visibility into money flows. In October, Jack Ma delivered a speech that criticized China’s financial regulators and banks for stifling innovation, which obviously angered regulators and ultimately caused the planned IPO’s derailing.
Jack Ma may be China’s richest man and is part of the Chinese Communist Party (CCP), but this clearly shows that the Xi Jinping-led CCP is in charge of China and can enforce its will wherever it wants. Our lack of native understanding of how companies perform and their relationship with the CCP is one reason why we want to see valuation discounts to their Western analogs when investing in them. We’ll call it the “China Discount.”