China’s Ant Group set to raise US$34.5 billion in world’s largest initial public offering

Alison Tudor-Ackroyd
·6-min read

Digital finance behemoth Ant Group is set to raise about US$34.5 billion from its initial public offering in Hong Kong and Shanghai, paving the way for a record-breaking deal and a valuation topping the world’s biggest bank, JP Morgan Chase.

The most valuable unicorn on the planet is likely to make its hotly anticipated debut on Shanghai’s Nasdaq-styled Star Market and Hong Kong’s stock market on November 5, two days after the US election.

Hangzhou-headquartered Ant priced its 1.67 billion A shares at 68.80 yuan (US$10.27) and the Hong Kong stock at HK$80 (US$10.32) apiece.

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Co-hosting the world’s biggest IPO is a badge of honour for the fledgling Star Market, which was launched only in July last year as part of Chinese President Xi Jinping’s plan to fund the growth of mainland Chinese technology firms.

For Hong Kong, Ant’s IPO helps it keep pace with the swift development of financial hubs in mainland China. Beijing is steadily opening its domestic financial markets to foreign investors and nurturing neighbouring Shenzhen as a technology and financial hub.

Ant’s coming out parade also illustrates China’s lead in digital finance. The number of monthly active users of its super-slick mobile payment app, Alipay, hit 731 million on September 30, dwarfing Palo Alto-based PayPal’s user base, the largest digital payments platform outside China.

Ant’s payments network is just the gateway, funnelling small businesses and consumers into a broad financial ecosystem spanning lending, investment products and insurance services. The system’s cogs are oiled by a trove of data gathered in China, the world’s most populous country, which makes pricing more accurate and efficient than at lumbering state-owned traditional banks in the world’s second-largest economy.

The coronavirus pandemic has turbocharged usage as people have turned to digital payments and e-commerce as a way of maintaining social distance.

Ant’s IPO values the company at US$313 billion, rising to US$318.50 billion including an over-allotment option. That is more than double Ant’s price tag in its last private fundraising just two years ago.

Jack Ma hailed Ant’s IPO as the largest in human history during the Bund Summit 2020 in Shanghai. Photo: Weibo
Jack Ma hailed Ant’s IPO as the largest in human history during the Bund Summit 2020 in Shanghai. Photo: Weibo

Fast-growing Ant’s value is likely to rise at a faster clip than the broader economy. The core group of analysts at banks orchestrating the share sale peg Ant’s near-term valuation in a range from US$350 billion to US$450 billion, according to people familiar with the matter.

At the high end of that range, 16-year-old Ant’s value would top the US$316 billion market capitalisation of JPMorgan Chase that traces its roots back to 1799 in New York City. On a different scale, it would be bigger than the economies of either Nigeria or Austria.

IPOs are usually sold at a discount to fair value, given the large number of shares on offer and to help them trade higher after flotation.

Jack Ma, China’s richest person who owns a controlling stake in Ant, billed Ant’s share sale as the largest in human history on Saturday. The deal is set to smash the IPO record set by Saudi Aramco’s US$29.4 billion IPO last December in terms of cash raised, albeit for a smaller stake in the company. Many will see the landmark as a symbolic handover from the old to the new economy.

How to conduct a dual IPO in Hong Kong and mainland China

Ant’s valuation after the IPO represents about 48 times net profit trailing 12 months from June. The average price to earnings ratio of the Star Market’s 187 companies stood at 87.6 times 2019 earnings on Friday.

PayPal is trading at 93 times trailing 12 months earnings and has a market capitalisation of US$238 billion after a sharp climb in value this year. Rival internet conglomerate Tencent, which runs the WeChat Pay payments platform, is trading at a P/E multiple of 51 times trailing 12 months earnings.

In the preliminary price consultation process of Ant’s A shares, big money managers subscribed for over 76 billion shares, or over 284 times the institutional tranche, according to a filing to the Shanghai Stock Exchange on Monday.

“Given its unique position in China, and the world’s most conspicuous unicorn, Ant Group shares will soar after it begins trading at the Star Market,” said Ivan Li, a money manager at Shanghai-based Loyal Wealth Management.

Ant set to smash Saudi Aramco’s record
Ant set to smash Saudi Aramco’s record

International traders can only access Star Market-listed shares by tapping their quotas for cross-border trading, as the Star Market is off-limits to investors trading A-shares through the mutual recognition scheme with Hong Kong known as Stock Connect.

Ant will take subscriptions in Shanghai on October 29, with only 20 per cent of the IPO shares slated for retail investors a scramble for the stock is likely.

“The 20 per cent shares offered to the general public will be hundreds of times oversubscribed,” said Ding Haifeng, a consultant with Shanghai-based financial advisory firm Integrity.

Investment banking boutique Ampere Partners is Ant’s financial adviser. CICC, Citigroup, JPMorgan and Morgan Stanley are the sponsors and among the book runners of the Ant’s Hong Kong share sale.

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.

Ant and its advisers will now start building a book in the H shares, collecting pledges and allocating stock to some of the world’s largest money managers as well as mom and pop investors in Hong Kong. The greenshoe, or overallotment option, for H-share will be not more than 15 per cent.

Ant is initially offering 41,768,000 H shares for subscription by the public in Hong Kong, about 2.5 per cent of the available H-shares. If the Hong Kong public offer is oversubscribed by 20 times or more, then the retail offering will rise to 10 per cent of the deal.

“Unlike Hong Kong where traders would buy shares on valuation, mainland investors would price in everything from its glamorous title of the world’s largest IPO issuer to national pride,” Loyal Wealth Management’s Li said.

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