Chinese billionaire Jack Ma’s Ant Group has assembled at least 21 financial advisers to sell what is likely to be the world’s largest initial public offering in Hong Kong and Shanghai, although some are playing a larger role in the deal than others, according to people familiar with the matter.
The banks and brokers fanned out last week to ramp up the share sale. A core group of analysts sent their research to investors, guiding them on valuation yardsticks.
The Chinese fintech giant is set to announce the price of the Shanghai leg of the share sale on Monday, while the investors are assuming the Ant stock will make its public markets debut after the US election on November 3.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
The float of the world’s largest unicorn is a prestigious project for the banks, carrying major bragging rights. A role on the deal also shows the bankers are in a pole position to make a market in its shares and capture future business from Ant as it continues to grow and consume capital.
The armies of banks selling IPOs in Hong Kong have swollen over the past decade, and competition for fees is fierce. Chinese banks and brokers are spilling across the border, using the city as a launch pad for international expansion.
Chinese pork producer WH Group hired 28 book runners to sell its IPO in 2014, electronics group Xiaomi hired 21 on its US$5.4 billion IPO in 2018, and China Tower had 15 on its IPO in the same year.
By contrast, in the US, the number of banks working on IPOs is still small, generally two to five.
“Having a flurry of advisers working on deals ensures a higher chance of the shares being distributed widely. It’s a door-opening exercise for the issuer at little extra cost,” said Benjamin Quinlan, CEO and managing partner of strategy consultancy Quinlan & Associates.
The banks are splitting the fee pool from the deal, but the different titles denote differing responsibilities, type of work and the fees they can command. Sponsors shoulder the greatest responsibility in shepherding an IPO through to its public market debut and typically reap the biggest slice of the fee pie, while book runners keep tabs on investors buying into the share sale.
Others are more hands-on in terms of crafting the marketing strategy and offering trusted advice. Some are along for the ride, potentially a nod by Ant to a broader relationship. Brokers are keen to share the accolades of what is shaping up to be a record-breaking deal.
Inside the ranks, Ant and its generals have put the advisers into separate workstreams, with each assigned investors to chase to limit overlap.
Banks have put their star bankers on the deal, given its size and importance. Within the larger firms, bankers who have worked with Alibaba’s group companies before are working on this deal, while their colleagues who are close to rival Chinese internet giant Tencent are sitting this deal out.
Many of the Chinese banks and brokers are still developing their distribution platform and building experience on international deals, with the stark exception of China International Capital Corporation (CICC), known as the Goldman Sachs of China.
Ant’s IPO is set to smash the record held by Saudi Aramco’s US$29.4 billion IPO last December as the biggest ever share offering, albeit of a smaller stake in the company.
Ma, who owns a controlling stake in Ant, billed the share sale the “largest in human history” on Saturday and said that the firm and its advisers had already decided pricing of the Shanghai tranche on Friday. Ant will take subscriptions in Shanghai on October 29.
Analysts sent research to investors on Wednesday pegging Ant’s near-term valuation roughly between US$350 billion and US$450 billion on a like-for-like basis, including the money it is raising in the IPO, according to people familiar with the matter. On a different time frame, JPMorgan analysts are particularly bullish on future growth potential and estimated Ant’s market capitalisation will swell to north of US$500 billion post-money, eventual share value.
Credit Suisse analysts peg Ant’s valuation between US$380 billion and US$461 billion, with a price/earnings to growth ratio between 1.2 times and 1.4 times. They forecast Ant’s net profit will hit 56 billion yuan (US$8.4 billion) in 2021 and 75 billion yuan in 2022.
With an IPO discount, normally of around 15 per cent, the deal will peg Ant below those lofty heights, particularly as Ant’s management are keen to see the shares trade well in the aftermarket. Initial feedback from the roadshow was that investors are getting comfortable with a valuation range of roughly between US$350 billion and US$390 billion post-money, the people said.
Ant is selling 11 per cent of an enlarged capital base in the IPO, excluding an overallotment option.
Investment banking boutique Ampere Partners is Ant’s financial adviser. CICC, Citigroup, JPMorgan and Morgan Stanley are sponsors and book runners of the Ant’s Hong Kong share sale.
Credit Suisse, which has a long-standing relationship with Alibaba Group Holding, a major shareholder in Ant and owner of this newspaper, and CCB International are joint global coordinators and joint book runners. Credit Suisse is also a shareholder in Ant, according to its prospectus.
The list of book runners are ABC International, Barclays, BoC International, ICBC International, BNP Paribas, CMB International, DBS and Mizuho.
Meanwhile, Deutsche Bank, which was one of the key banks helping Ant with its Series C fundraising, and Goldman Sachs are joint lead managers.
The line-up is very similar to the advisers on Alibaba’s secondary listing in November, minus a couple of banks including HSBC.
CICC and China Securities are joint sponsors and underwriters of the Shanghai leg of the IPO. Book runners include BOC International, Citic Securities, Huatai and Shenwan Hongyuan. Haitong Securities is the financial adviser of the deal.
Spokespeople for the banks and Ant either declined to comment or did not immediately respond to requests for comment on the line-up.
Increased competition from new entrants has squeezed bankers’ fees down to around 2 per cent on Hong Kong listings, but fees are still fat in Shanghai’s Nasdaq-style Star Market at an average of 7.3 per cent. Revenue percentages on larger deals are usually scaled back. For Wall Street banks, the attraction of working on Star listings is dimmed by rules that they would have to take 2 per cent to 5 per cent of the company’s stock and cannot immediately sell it, tying up their capital.
“Given the number of banks working on IPOs in Hong Kong, investment banks have to make a tough choice between claiming the credit for working on such a landmark deal and profitability. Admittedly, the ticket size of this deal is big,” said Quinlan.
Additional reporting by Chad Bray
More from South China Morning Post: