Chinese Regulators Suspend Ant IPO, Legislate New Hurdles

China put a halt to Ant Group’s two initial public offerings, leaving investors, employees and shareholders in a state of shock. The IPOs, described as “heavily oversubscribed,” was expected to raise at least $334.4 billion. The first inkling that things were going off the rails came Wednesday when some investors were informed their orders were canceled and monies would be refunded. The Shanghai Stock Exchange suspended the scheduled November 5 IPO, saying Ant might not be in compliance with new fintech regulations.

The Wall Street Journal reports that hints of trouble came on September 14 when “China’s banking and insurance regulator issued a private notice to some commercial banks warning them about the risks of making loans in partnership with third-party institutions,” adding that “banks should not be outsourcing their loan underwriting and risk controls.”

Two days later, “the regulator published a guideline that placed caps on the volume of asset-backed securities that could be issued by microlenders.” Investors, however, remained “unperturbed.”

In anticipation of the Hong Kong IPO, “Ant took the unconventional step of fixing a price for its offering from the get-go, rather than giving investors a price range and letting their demand and orders determine a final price per share for the IPO.” It valued the company at $313 billion, “making it worth more than most American and Chinese banks.” On October 28, “Ant closed the books on its institutional share sale one day ahead of schedule due to overwhelming investor demand.”

On November 2, however, controlling shareholder Jack Ma, executive chair Eric Jing and chief executive Simon Hu were “summoned to a rare joint meeting with four Chinese regulators.” The next day, China issued “draft regulations that will likely force Ant to come up with $30 for every $100 in consumer and business loans it originates in conjunction with banks.”

“The government’s goal is to remind the company who is in charge of the financial system, not to put it out of business,” said Gavekal Research director of China research Andrew Batson, who added that, “Ant will almost certainly return to list in Shanghai and Hong Kong, but the company may have to make substantial changes to its internal organization and business model to comply with new regulatory requirements.”

The New York Times reports that, “shares of Alibaba, a major Ant shareholder, fell 8 percent on the New York Stock Exchange on Tuesday” on the news of the IPOs’ cancellation. After the meeting with Ma and the other Ant executives, the China Banking and Insurance Regulatory Commission issued “new draft rules for microfinance businesses,” including “higher capital requirements for loans and tighter controls on lending across provincial lines.”

China Association of Microfinance executive Bai Chengyu said, “the new rules could cause the entire microfinance industry to shrink.” Ma’s response to the new rules was to say, “we cannot manage an airport the way we managed a train station … we cannot use yesterday’s methods to manage the future.”