Ant Group’s IPO delay leaves five mutual funds with US$9 billion in limbo, as potential first-day trading bonanza goes poof

Zhang Shidong
·4-min read

Ant Group’s unexpected and abrupt delay in its blockbuster initial public offering (IPO) has cast a pall over the fate of five Chinese mutual funds that otherwise would find themselves sitting on one of the biggest bonanzas of global finance.

China Universal Asset Management, China Asset Management and three other mutual funds allocated 10 per cent of the 60 billion yuan (US$8.9 billion) they raised in September towards buying yuan-denominated A-shares of Ant Group in Shanghai’s Star Market. With the US$39.67 billion dual listing called off, the fate of those funds are unclear.

Universal Asset and China Asset said they don’t yet have a plan to deal with the proceeds they raised, which would be returned to them by Ant Group with the postponement of the IPO, according to their media officials. Spokespeople at E Fund Management, Penghua Fund Management and Zhong Ou Asset Management could not be reached to comment.

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The IPO suspension came as China’s financial regulators signalled their intention to tighten the regulatory requirements on online consumer loans, also known as microlending, and require lending platforms to pony up more registered capital before they can engage in consumer loans, Morningstar’s analyst Iris Tan wrote in a note.

An Alipay logo next to the Shanghai office of Ant Group on November 3, 2020. Photo: AFP
An Alipay logo next to the Shanghai office of Ant Group on November 3, 2020. Photo: AFP

“The suspension of the IPO is aimed to leave more time for Ant to further disclose related impacts on their business and valuation,” Tan said. “Foreign investors should bear in mind there are plenty of regulatory risks in China as the regulations are evolving to catch up with the rapidly growing fintech business.”

Each of the five Chinese funds raised 12 billion yuan in September from China’s individual investors to give them exposure to Ant Group’s stock sale on Star Market, which has a higher entry barrier than other trading accounts on the country’s capital market.

Ant Group offered 1.67 billion shares each in Hong Kong and Shanghai to raise about US$34.5 billion, making it the world’s biggest IPO. Including a 15 per cent overallotment in each leg, the total size of the IPO will increase to US$39.67 billion. Retail investors submitted the equivalent of a record 19.05 trillion yuan in subscription money for Ant’s share offering on the Star Market, a board of technology stocks in Shanghai, 872 times more bidders than available shares.

After Ant called off its IPO overnight, the Hangzhou-based fintech company outlined a process for refunding the money put forth by retail investors. No such procedures were outlined for mainland China investors, mainly because margin financing – the granting of short-term credit to enable investors to afford their stock purchases – is not allowed.

Instead, investors who don’t meet the 500,000 yuan minimum balance in their stock accounts before being eligible to bid for Ant Group’s shares bought mutual funds to gain access to the fintech company.

Ant Group, an affiliate of this newspaper’s owner Alibaba Group Holding, cited a significant change to the business environment as the suspension of the listing, it said in a statement without being specific. That came just days after China’s central bank and the other four financial regulators summoned a meeting with its co-founder Jack Ma Yun, executive chairman and chief executive.

The suspension, which just happened on the eve of Ant’s market debut, is a setback for China’s individual investors that are keen on getting a share of the fast-growing digital economy. Ant Group-linked stocks all fell in China. Inner Mongolia Junzheng Energy & Chemical, which owns a stake in Tianhong Asset Management along with Ant Group, fell 9.3 per cent to 6.16 yuan. China Life Insurance, a shareholder of Ant Group, tumbled 5.1 per cent to 43.43 yuan.

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