I was amazed when I received the breaking news on my cellphone at 8:48pm Thursday here in Hong Kong. Alibaba Group Holding (BABA) spin-off Ant Group is reviving plans for its IPO.
“Wow, this has really come full circle,” I thought to myself. After all, it was Ant’s original plans for what would be the largest IPO in the world, which none other than Chinese President Xi Jinping personally stopped two days before the planned IPO.
These events in November 2020 marked the beginning of an attack on China’s tech sector. It’s an attack that has spread to private companies in general. The market has rallied this week, notably in Hong Kong, with multiple signs suggesting the crackdown is coming to an end.
But an anti-IPO revival? That would really bring us back to the beginning. As the Reuters alert reads, “EXCLUSIVE Beijing gives initial approval to revive Ant’s IPO plans in Shanghai, Hong Kong – sources”
Just not that fast. There is a denial from the Chinese equities regulator today that anything is pending. Has the China Securities Regulatory Commission (CSRC) set up a working group to consider resuming Ant listing?
No, says China’s equivalent to the Securities and Exchange Commission. The CSRC “has not conducted any evaluation or research in this regard,” according to the statement, which you can read here. But “we support eligible platform companies with listings at home and abroad.”
Denial aside, it’s pretty harmless stuff, a one-liner. But the inclusion of that word “platform” is key. This means that the tech listings are active again. More on that later …
Ant also says it is not currently working on an IPO. “Under the guidance of regulators, we are focused on steadily advancing our corrective work and have no plan to initiate an IPO,” the company said on its WeChat account.
The Reuters report, citing two unidentified sources, says Ant intends to file a preliminary prospectus for a revived IPO “as soon as next month.” According to one of the sources, the fintech group that runs China’s ubiquitous Alipay app has yet to “await guidance” from the CSRC on the exact timing of prospectus filing.
And it was said only that China’s central leadership had given the “tentative green light” for an IPO. I don’t know if you can drive safely on the road if you’re tentatively given the green light. Could be dangerous! Sounds like a yellow light that blinks green at best once.
Translation to my ears: Ant is working on a potential Stock offering, has hired third parties like lawyers and investment bankers who are likely the source of the leaks, but isn’t ready to announce it just yet because it’s also haggling with regulators over what might be allowed.
In fact, Bloomberg got the ball rolling with an initial report Thursday that the CSRC assembled a team to reevaluate an Ant Group stock offering. According to the report, Chinese financial regulators are in “early talks” about a possible revival of the IPO, “according to people familiar with the matter.”
A bit of history
Let’s not forget that Ant has been ordered to reform since going public in 2020. As he described it, “correcting” how a good communist is sent for re-education.
Regulators then asked Ant to split the back end of its lending business, Huabei, which issues virtual credit cards, and Jiebei, which issues consumer loans. They also asked Ant to spin off CreditTech, which operates both companies, into a separate entity that would have government co-ownership.
Ultimately, Ant needs to set up a financial holding company for these companies so they can be regulated like a bank. Alipay would continue as a separate business dedicated to transactions but not lending.
Authorities are preparing to grant Ant that financial holding license, Bloomberg explained, “although it’s unclear how soon a final decision on it will be made.” An official banking license would pave the way for anyone with the green light to go public could.
Is an Ant IPO just about Alipay or the banking license deal? These are questions that remain unanswered. There’s sure to be some flames causing all that smoke. But what kind of ant is allowed to go public, or if it’s allowed to go public at all, isn’t clear. We need the green light.
We’ve seen this movie before
It would be a milestone if an Ant IPO finally materializes. And potential investors should proceed with clear caution. Let’s not forget that Chinese financial regulators had already approved the entire original IPO, which was expected to raise $34.4 billion, $37 billion with an over-allotment.
Xi intervened directly to stop it. Alibaba poster boy Jack Ma had made a saucy speech at a conference in Shanghai two days before Ant’s IPO was priced, criticizing the Chinese banking system while banking regulators were present and saying Chinese banks have a “pawn shop mentality.” . Xi and other Chinese Communist Party officials have already expressed concerns about having to question Ma about his overseas visits, during which he met with heads of state.
Alibaba owns 32.7% of Ant. Ma has kept a remarkably low profile since the Ant attack. He first reappeared on a study trip to Spain to learn more about agricultural engineering, as if he had suddenly taken a Maoist turn to work on a collective farm. Chinese tech companies in general have since bent over backwards to announce socially oriented and benevolent initiatives. Ma led a wave of tech entrepreneurs exiting their companies.
Whether China would continue to allow companies to list overseas, particularly in the technology sector, has been in doubt since that fateful day when Ant’s IPO went through in Hong Kong and Shanghai. The IPO had already been approved in both cities. It made the stock market regulators look stupid. Would-be retail investors had deposited enough cash to participate in making the Hong Kong dollar move. Now they had no idea what was going on.
Hong Kong as an offshore market with a free currency and Shanghai as an onshore market with the heavily regulated yuan want to offer an alternative to Wall Street. The Ant fiasco made it clear why a company would still go public in downtown Manhattan and the bastion of capitalism. The SEC isn’t perfect, but its rules are wired, publicly available for consultation, and clear. There’s no way an IPO of Ant’s magnitude, approved at every stage, would have gone through two days ahead of schedule.
DiDis domino effect
Then, last July, came the move that sent ride-hailing leader Didi Global (DIDI) stock plummeting shortly after listing. Suddenly, offshore markets were taboo, especially for “platform” stocks, a term China uses for e-commerce sites and apps that essentially consolidate user demand.
It became a clear danger to owning Chinese stocks, and Beijing later doubled down in July last year with its overnight decision to ban for-profit study centers altogether. Industry leaders TAL Education Group (TAL) and New Oriental Education & Technology (EDU) tumbled. Both remain down about 85%.
There are already rumors that Didi will soon be able to sign new customers again, as I explained on Wednesday. Another company, simultaneously fined in the same way, is already able to add new users on its apps, with freight consolidator Full Truck Alliance (YMM) back in new business. A third company, the Kanzhun (BZ) construction site, is also said to be able to win new customers The Wall Street Journal.
With Ant in play, the two biggest targets of Beijing’s crackdown would both go on hiatus. This will be no consolation for Didi shareholders. They’re still suffering similar-sized losses to the education companies, with DIDI down 83% from its IPO price of $14.
DiDi shares rallied like penny stocks on the New York Stock Exchange before the company planned to delist them. That’s a move approved by Chairman and CEO Cheng Wei in an SEC filing on June 2. The delisting is set to take place 10 days later, which would be this weekend, although the company has not notified shareholders whether today is scheduled to be the final day for trading.
Ant “investors” should be very happy that the original sale never went through. As a result, today there is a most unusual arbitrage play on Alibaba Group Holding.
In Hong Kong, Alibaba shares are still basking in the shine this week on both the easing of lockdowns in Shanghai and Beijing and suspicions that the tech crackdown is ending.
Alibaba closed up 1.4% in Hong Kong today after big gains on Monday and Wednesday. That has pushed shares up 22% since the close ahead of last week’s three-day weekend for the Dragon Boat Festival. There was no downside.
On Wall Street, BABA shares fell 8.1% on Thursday, with any optimism about a revived Ant IPO dwindling during the day. They are up “only” 15.5% over the last week, or just 12.7% if you want to go back to the close on Thursday 2nd June to reflect last Friday’s Greater China trading holiday .
The New York listing should close the gap on Hong Kong stocks. DiDi’s delisting would mark its ultimate surrender as a victim of Big Tech’s crackdown in China. A revival of the Ant IPO could make it the first rebirth.
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