Chinese investors have begun booking their bit of Ant Group’s mega initial public offering, snapping up new mutual funds picked by the digital payments juggernaut as strategic buyers, even before the flotation has kicked off.
About 10 billion yuan (US$1.5 billion) worth of five mutual funds that have been allocated shares from Ant’s mainland tranche were sold within an hour of going on sale on Friday morning. Two of the funds will not be accepting public subscriptions any more, after their caps for the IPO were reached on Saturday, according to mainland Chinese media.
The funds, which will be managed by five different money managers, including China Asset Management and China Universal Asset Management, have been capped at 12 billion yuan each. As much as 10 per cent of their assets will take part in the IPO and will be subject to an 18-month lock-up period.
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Ant, which is launching dual listings in Shanghai and Hong Kong, is seeking to raise about 48 billion yuan from the mainland tranche of its offering, a placeholder amount which may deviate from the actual amount after the company’s presentation to investors. The combined size of the flotation might exceed the US$25.6 billion Saudi Aramco raised last year in what was the world’s most valuable IPO yet.
The mutual funds give China’s 148 million individual investors indirect access to the country’s biggest unicorn and its IPO, which will probably become the world’s biggest-ever listing. Most of the country’s small investors are not qualified to trade on Shanghai’s technology-heavy Star Market, where Ant Group is set to be listed, because of asset thresholds.
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While buying shares on the Star Market requires a minimum of 500,000 yuan in assets in stock accounts, subscription to the funds that will invest in Ant Group can start from 1 yuan through Alipay, Ant’s flagship digital payments app. And even for qualified individual Star Market investors, the chances of successfully subscribing to the IPO shares are low, as the oversubscription rate for new shares is often more than 1,000 times.
And while Ant is China’s largest digital payments provider, accounting for 50 per cent of market share, investors will count on its financial technology businesses, including microlending and the online sales of wealth management and insurance products, as the main drivers of growth.
“The digital payments business has entered a period of stable growth, and there’s more potential for the marketing of wealth management and insurance products on its digital platforms,” said Wang Jian, an analyst at Guosen Securities. “The combination of its large customer base and room for expansion for the industry will bring growth potential to the company.”
Ant had 710 million active users by June. It might trade at a price-to-earnings ratio of as much as 60 times, valuing the company at about 2.5 trillion yuan on its Star Market debut, according to Zhongtai Securities. Its net income will probably surge 145 per cent from a year earlier in 2020 and rise 26 per cent in 2021, the brokerage said.
The valuation multiple for Star Market is 90 times, six times as expensive as that of companies listed on the Shanghai exchange’s main board, according to bourse data. Star Market currently has 179 listings.
Ant Group is only a step away from trading on the mainland exchange, with just registration with the stock-market regulator pending after the listing was approved by the Shanghai exchange last week. The offering and listing dates have not been decided yet.
In its latest prospectus posted on the website of the Shanghai exchange, the digital payments behemoth estimated that its gross profit for the first nine months this year could increase by as much as 73 per cent from a year earlier, because of a boom in China’s digital economy and a decrease in costs.
China’s 2.6 trillion yuan National Social Security Fund is expected to become a cornerstone investor in Ant Group by buying the mainland leg of the stocks that it will offer.
More from South China Morning Post:
- Ant Group gets the green light for mega IPO in Shanghai’s Star Market as China pulls out all stops to help tech champions raise funds
- Ant Group IPO set for Star Market review in Shanghai on September 18