Hong Kong's "mom and pop" investors had been looking forward to an instant jackpot via Ant Group's record-busting $34 billion IPO. Instead, China's shock suspension of the listing has left them baffled and angry.
The financial tech titan's listing came crashing down on Tuesday evening as regulators pulled the plug just two days before its dual debut in Hong Kong and Shanghai.
Demand was so strong in Hong Kong that Ant announced it was going to stop selling a day early, while in Shanghai it was more than 800 times over-subscribed.
Unlike in mainland China, Hong Kong allows margin financing, permitting investors to borrow large sums of money in the hopes of boosting their chance of share allocation.
Investors bet on a debut share spike, pay back the loan and pocket the gains while banks and brokers make money from interest.
Barring small interest payments — which some institutions may forgive — investors will get their money back.
But many in Hong Kong nonetheless expressed frustration at how Chinese regulators had made their decision so late.
"This is an international joke," fumed Winni Cheung, 31 and self-employed who invested over HK$200,000 ($25,800) on Ant.
Adding salt to her wounds, she said, was the HK$10,000 her shares in Alibaba — Ant's parent company — had lost on Wednesday morning as markets reacted.
"(Chinese) state media said the suspension was to protect investors like us but if they really wanted to protect us, they should have stopped the IPO when the company submitted its application for scrutiny," she added.
– No payday –
Jackson Wong, an asset management director at Amber Hill Capital, said investors were "expecting a huge pop on the first day… anything from 30 to 50 percent".
"So that would be a pretty good payday for lucky investors who will be allotted shares. Now, instead, they will not get any allotment, the IPO is not going to come. And also they might face some interest payment on their margins."
Chris Liu pulled together a HK$1.3 million pot for Ant shares — HK$900,000 from margin financing.
"When I saw the news last night, my first reaction was that the Chinese government is really unbelievable," he told AFP. "I didn't expect the IPO to go wrong like this."
It has been a grim economic year for Hong Kong, hit by the US-China trade war, the coronavirus pandemic and last year's roiling pro-democracy protests.
The city is deep in recession, unemployment is rising and the stock exchange is down about eight percent since the start of the year.
But first time listings have been a rare opportunity — as of September Hong Kong was third in the global IPO ranking for 2020, according to KPMG.
Bankers will be mourning the loss of some handsome commissions.
Three of the four IPO sponsors in Hong Kong were US banks. Alongside China International Capital Corp, Citigroup, JP Morgan Chase and Morgan Stanley were expected to reap the lion's share of the estimated $400 million in fees from both Ant and investors, according to Bloomberg.
– 'What can we do?' –
One regular investor, who asked to only give his surname Choy, said he had pulled together HK$500,000 cash and a further HK$4.5 million in margin financing.
"I invested in new IPOs all year round, no way I wasn't going to invest in this one," he told AFP.
Choy, who described himself as a committed stock market "gambler", shrugged off the interest payment losses of around HK$4,000.
"If you count my earnings from IPOs all year round, this is not a big loss to me at all," he said.
But he was unhappy with how things unfolded.
"The suspension was announced way too late, but China has no rules. The regime is a jerk, but we can still earn money off it."
China's last-minute decision was quickly interpreted as a signal from the nation's communist leaders that they were uncomfortable with the enormous influence of Ant, which has helped revolutionise commerce and personal finance but eroded the power of state financial institutions.
The opaque and often unpredictable relationship between the Chinese state and business is something many in semi-autonomous Hong Kong are becoming more familiar with.
Beijing has blanketed the city in a sweeping national security law following months of democracy protests last year and has made it clear it expects big business in the finance hub to get on side.
Liu said he felt Ant's sudden troubles were a reminder of the Chinese state's power.
"When a giant like Ant can fall like this, what can we ordinary people do?"
Ant Group: China's fintech flyer grounded by regulators
Beijing (AFP) Nov 4, 2020 –
Set for a record-busting $34 billion IPO in Hong Kong and Shanghai, Ant Group has had its wings summarily clipped by Chinese regulators.
Backed by Jack Ma, China's richest man who founded the Alibaba e-commerce empire two decades ago, Ant is a financial technology titan stitched into the everyday life of hundreds of millions of Chinese people through its easy mobile payments system.
But the group — which has more than 700 million monthly active users — has drawn concern in China's state-controlled finance sector by venturing into personal and consumer lending, wealth management and insurance.
Outside China it is less well known. So what is Ant?
– Ma's early vision –
Ant Group is the parent company of Alipay, China's pioneering digital payments firm, which was founded by Ma in 2004.
A former teacher, Ma started in digital sales with the Alibaba e-commerce giant but his ambitions then turned to the potential for simplifying personal finance in China.
He envisioned a cashless society based on "trust and credit" where buyers' cash is held in escrow by Alipay for merchants to send their goods with a guarantee of return for any unhappy customers.
In interviews Ma likes to recount how the start of Alipay was met with derision, saying: "Everybody said 'Jack this is the most stupid model we've ever seen, nobody will use it.'"
From payments for food deliveries, instant loans to micro-investment and insurance, Ant has mushroomed into an integral part of everyday Chinese life.
It now claims one billion users, partly thanks to Ma's gift for navigating China's red tape and gatekeepers.
But he may have crossed the line last month at a Shanghai business forum where he appeared to criticise regulators for being too heavy-handed and stifling technological innovation — prompting criticism in state media over the risks of Ant becoming too big.
– Colonising Chinese finance –
Ant's reach is astonishing.
It is the world-largest digital payments platform, claiming 731 million monthly users on the Alipay app using more than 80 million stores.
That equated to $17.6 trillion in payments as of June this year, 25 times more than US giant Paypal.
The company is leading the line on blockchain technology and says it has a capacity to match one billion transactions a day on the so-called AntChain.
Its financial products have revolutionised personal finance across a country where around 10 percent of the population remains unbanked.
The Alipay app launched in 2013 a "Yu'eBao" service, which allows ordinary people to play money markets from their e-wallet.
The "leftover treasure" concept gave entry to investments of as little as one yuan, briefly becoming the world's biggest fund with nearly $200 billion in circulation.
Meanwhile, Zhima Credit (or Sesame Credit) is its credit scoring system, and Bangnitou — an artificial intelligence powered investment adviser — hoovered up 200,000 customers within six months of its launch.
Its supercharged success may be behind its sudden regulatory woes.
– Stormy waters –
Armed with the data of hundreds of millions of people, boundary-pushing AI and its pockets planned to be stuffed with IPO cash, Ant had a vision for new innovations and rolling into new markets.
Domestically, Alipay is pushing facial recognition payments technology, and abroad, the vast, young tech-friendly populations of Southeast Asia and India are seen as fertile ground for its products.
But Tencent's WeChat, the second player in China's digital payments market, is gobbling up market share, and global trust in Chinese technology has taken a hit.
Most importantly, the field of fintech has come under state scrutiny at home, with new state regulations introduced to contain potential risks in China's growing online lending industry — an area Ant has been rapidly expanding in.
– Shock IPO suspension –
Just as the IPO looked set to roll, regulators called a halt and told Ant it couldn't go ahead until it complied with new capital requirements.
The Shanghai Stock Exchange cited "changes in the fintech supervisory environment" late Tuesday, ending the sale, which was also called off in Hong Kong.
A day earlier Ma and Ant executives were summoned to a rare joint meeting with the country's central bank and three other top financial regulators, prompting speculation they had been given a dressing-down.
Recently state media have started issuing warnings about potential financial instability that could result from Ant Group's rapid growth, as well as criticising Ma's comments about over-regulation.
Already China's richest man, Jack Ma stood to make around $27.8 billion from his 8.8 percent stake in Ant if the share sale had gone to plan. Instead, a plunge in Alibaba's share price in Hong Kong and New York has taken a chunk out of his fortune.
For now investors must wait and see.
