I was amazed when I got the breaking news alert on my phone here in Hong Kong at 8:48 pm Thursday. The Alibaba Group Holding (BABA) spinoff Ant Group is reviving plans for its initial public offering.
“Wow, things have really turned full circle,” I thought to myself. After all, it was Ant’s initial plans for an initial public offering, due to be the largest IPO the world had ever seen, that none other than Chinese President Xi Jinping personally halted two days before it was due to take place.
Those events, way back in November 2020, marked the beginning of an onslaught on the Chinese tech sector. It’s an attack that expanded to include private business in general. The market has been rallying this week in Hong Kong in particular with several indications that the crackdown is coming to a close.
But an Ant IPO revival? That really would take us back to the start. As the Reuters alert put it: “EXCLUSIVE Beijing gives initial nod to reviving Ant IPO plans in Shanghai, Hong Kong – sources”
Only not so fast. There’s a denial today from the Chinese stock watchdog that anything is pending. Has the China Securities Regulatory Commission (CSRC) set up a working group to evaluate a resumption of the Ant listing?
But China’s equivalent to the Securities and Exchange Commission says. The CSRC “has not conducted evaluation and research work in this regard,” said the statement, which you can see here. But “we support eligible platform companies to list at home and abroad.”
The denial aside, it’s pretty innocuous stuff, a one-liner. But the inclusion of that word “platform” is key. It means tech listings are back on. More on that later …
Ant also says it’s not working on an IPO right now. “Under the guidance of regulators, we are focused on steadily moving forward with our rectification work and do not have any plan to initiate an IPO,” the company stated on its WeChat account.
The Reuters report, citing two unidentified sources, said Ant aims to file a preliminary prospectus for a revitalized IPO “as soon as next month.” It does say the fintech group, which runs the Alipay app that’s omnipresent in China, still needs to “wait for guidance” from the CSRC on the specific timing of the prospect filing, according to one of the sources.
And it said only that China’s central leadership has given a “tentative green light” for an IPO. I don’t know if you can drive the road ahead safely if you’re given a tentative green light. Could be dangerous! Sounds like a yellow light, blinking green once at best.
Translation to my ears: Ant is working on a potential stock offering, has hired third parties such as lawyers and investment bankers who are the likely source of the leaks, but isn’t ready to announce it yet because it’s also haggling with regulators as to what might be allowed.
Indeed, Bloomberg got this ball rolling with an initial report on Thursday that the CSRC has set up a team to reassess an Ant Group share offering. Chinese financial regulators are in “early-stage discussions” about a potential revival of the IPO, “according to people familiar with the matter,” in that account.
A bit of history
Let’s not forget that, since the 2020 IPO was pulled, Ant has been ordered to reform. As it described it, to “rectify,” like a good Communist sent for re-education.
Regulators subsequently told Ant to split out the back end of its lending businesses, Huabei, which issues virtual credit cards, and Jiebei, which makes consumer loans. They also told Ant to carve out CreditTech, which runs both businesses, into a separate entity that would have government co-ownership.
Ultimately, Ant will need to set up a financial holding company for those businesses so they can be regulated like a bank. Alipay would continue as a separate business devoted to transactions but not lending.
The authorities are preparing to issue Ant that financial holding company license, Bloomberg stated, “though it’s unclear how quickly a final decision on this will come.” An official banking license would pave the way ahead, so someone with an IPO green light could drive.
Would an Ant IPO just involve Alipay, or will it involve the business with the banking license? Those are questions that remain unanswered. There are certain to be some flames flicking around that are causing all this smoke. But what type of Ant that is allowed to go public, or if it is even allowed to go public at all, are not clear. We need a solid green light.
We’ve seen this movie before
It would be a landmark move if an Ant IPO does eventually go ahead. And potential investors should proceed with clear-eyed caution. Let’s not forget that Chinese financial regulators had already approved the entire original IPO, which was due to raise US $ 34.4 billion, US $ 37 billion with an overallotment.
Xi stepped in directly to stop it. Alibaba figurehead Jack Ma had given a swashbuckling speech at a Shanghai conference two days before the pricing of the Ant IPO, making comments that criticized the Chinese banking system while banking regulators were in attendance, and said Chinese banks had a “pawnshop mentality.” Xi and other Chinese Communist Party officials were already uneasy about needing to debrief Ma on his overseas visits, where he hobnobbed with heads of state.
Alibaba owns 32.7% of Ant. Ma has kept an extraordinarily low profile since the Ant attack. He first reappeared in Spain on a study tour to learn more about agricultural technology, as if he had taken a sudden Maoist turn to work on a collective farm. Chinese tech companies in general have since bent over backwards to announce socially focused and benevolent initiatives. Ma led a wave of tech entrepreneurs who have stepped down from their companies.
Whether China would continue to allow companies to list abroad, particularly in the tech sector, has been in question since that fateful day when Ant’s IPO was pulled in Hong Kong and Shanghai. The IPO had already been cleared in both cities. It made the stock regulators look stupid. Would-be retail investors had deposited so much cash to take part that it caused the Hong Kong dollar to move. Now they had no idea what was going on.
Hong Kong, as an offshore market with a free currency, and Shanghai, onshore with the heavily regulated yuan, are looking to offer an alternative to Wall Street. The Ant fiasco made it abundantly clear why a company would still look to list in downtown Manhattan and the bastion of capitalism. The SEC is not perfect, but its rules are telegraphed, put out for public consultation, and clear. There’s no way an IPO of Ant’s magnitude, approved at every stage, would have been pulled two days before it was due to occur.
DiDi’s domino effect
Then came the move last July that caused the stock in ride-hailing market leader Didi Global (DIDI) to crater just after listing. Suddenly, offshore markets were off-limits, particularly for “platform” stocks, and the term China uses for e-commerce sites and apps that essentially consolidate user demand.
It became a clear hazard to own Chinese shares, and Beijing doubled down later last July with its overnight decision to basically ban for-profit tuition centers. The share prices of industry leaders TAL Education Group (TAL) and New Oriental Education & Technology (EDU) collapsed. Both remain down around 85%.
There’s already a word that Didi will soon be allowed to sign new customers again, as I explained on Wednesday. Another company penalized at the same time in the same way is already able to add new users on its apps, with the freight consolidator Full Truck Alliance (YMM) back in new business. A third company, the job site Kanzhun (BZ), will also be allowed to attract new customers, according to The Wall Street Journal.
With Ant in play, the two biggest targets of Beijing’s crackdown would both be catching a break. It will be of little consolation to Didi shareholders. They are still nursing losses of a similar magnitude to the education companies, with DIDI down 83% from its US $ 14 IPO price.
DiDi shares bounced like penny stocks on the New York Stock Exchange prior to the company’s plan to delist them. That’s a move approved by Chairman and CEO Cheng Wei in an SEC filing on June 2. The delisting is supposed to happen 10 days later, which would be this weekend, although the company hasn’t notified shareholders if today is supposed to be the final day for trade.
Ant “investors” should be very happy that the original sale never went ahead. And there’s a highly unusual arbitrage play on Alibaba Group Holding today as a result.
In Hong Kong, Alibaba shares are still basking in the glow this week both from the easing of lockdowns in Shanghai and Beijing and the suggestion that the tech crackdown is ending.
Alibaba closed up 1.4% in Hong Kong today after big gains on both Monday and Wednesday. That has driven the shares up 22% since the close before the three-day weekend last week for the Dragon Boat Festival. There has been no downside.
On Wall Street, BABA shares fell 8.1% on Thursday, with any optimism about a revived Ant IPO evaporating over the course of the trading 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, June 2, to account for the trading holiday in greater China last Friday.
The New York listing should close the gap with the Hong Kong shares. DiDi’s delisting would mark its final capitulation as a victim of the Big Tech crackdown in China. An Ant IPO revival could make it the first rebirth.
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