What does Ant's frozen IPO mean?

 

On the evening of November 3, the Shanghai Stock Exchange issued a notice stating that as the actual controller, chairman and general manager of Ant Group had recently been jointly summoned by regulators for a supervisory meeting, the listing process of Ant Group would be suspended in accordance with the relevant provisions of the STAR Market. An hour later, the Hong Kong Stock Exchange issued a statement to suspend the listing of Ant Group.

A day earlier, on November 2, the China Securities Regulatory Commission disclosed that the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, and State Administration of Foreign Exchange had Jack Ma, Chairman Jing Xiandong, and President Hu Xiaoming conducted a supervisory interview.

On November 2, The People's Bank of China (PBoC) and the China Banking and Insurance Regulatory Commission issued "Interim Measures for the Administration of Online Small Loans (Draft for Comment)" for public comments. (hereinafter referred to as the draft opinions), which provides detailed regulations on the cross-provincial services of network small loans, small credit lines, and the proportion of funding for joint loans to small and medium-sized lending companies. Industry analysts think that some details of the draft will have a direct impact on the specific credit business of Ant Group.

 

The Shanghai Stock Exchange issued a letter to temporarily suspend Ant's IPO

 

On the evening of November 3, the Shanghai Stock Exchange issued an announcement to suspend the listing of Ant Group on the STAR Market.

According to the announcement, recently, the company may not meet listing qualifications or disclosure requirements due to material matters relating to the regulatory interview of its ultimate controller, executive chairman and chief executive officer by the relevant regulators and the recent changes in the Fintech regulatory environment.

In accordance with Article 26 of the "Regulations for the Registration and Management of Initial Public Offerings on the Science and Technology Innovation Board (for Trial Implementation)" and Article 60 of the "Shanghai Stock Exchange Science and Technology Innovation Board Stock Issuance and Listing Review Rules" and other provisions, the opinions of sponsors are sought, the Exchange has decided to suspend listing of Ant Group.

At the end of the announcement, it was stated that Ant Group and the sponsor shall make an announcement in accordance with the regulations, explaining the relevant circumstances of the material matter and the suspension of the company's listing. Within an hour, the Hong Kong Stock Exchange issued a statement to suspend the listing of Ant.

 

A "strong tightening signal"

 

On November 2, the day before the statement that Ant's listing was suspended, the People's Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, and State Administration of Foreign Exchange had Jack Ma, Chairman Jing Xiandong, and President Hu Xiaoming conducted a supervisory interview.

In this regard, Ant Group then publicly stated that Ant Group will deeply implement the interview advice, continue to follow the 16-character guideline of "prudent innovation, embracing regulation, serving the entity, open and win-win", and continue to enhance the ability of universal service to help the development of the economy and people's livelihood.

On the same day, The People's Bank of China (PBoC) and the China Banking and Insurance Regulatory Commission issued "Interim Measures for the Administration of Online Small Loans (Draft for Comment)" for public comments, a document that provides detailed regulations on cross-province services, small loan quotas, and the funding ratio of joint loans to small and medium-sized lenders.

According to the prospectus, Ant Group's revenue mainly contains three aspects: digital payment and merchant services, digital fintech platform, innovation business and others. Among them, the digital fintech platform accounted for 63.39% of the total revenue, nearly two-thirds.

Among the digital fintech platforms, the microfinance technology platform of the lending business generated 28.586 billion yuan of revenue for Ant Group, accounting for 39.41% of the total revenue, which has surpassed the payment business with 26 billion yuan of revenue. The credit business brought profits of 10.156 billion yuan, accounting for nearly half, or 47.8%, of Ant Group's total profits of 21.134 billion yuan.

It can be said that the credit business is Ant Group's "cash cow" product line, and the various rules in the "Interim Measures for the Administration of Online Small Loans (Draft for Comment)" have brought direct uncertainty to Ant's credit product line.

In the Draft, it is clearly stated that in principle, small loan companies are prohibited from conducting business across provinces, and if they want to provide cross-province services, they must be "examined and approved, supervised and managed by the banking supervision and administration authorities under the State Council, and be responsible for risk management and risk disposal". As the two small loan companies of Ant Group are established in Chongqing, Ant's small loan business, which cannot focus only on the Chongqing market, will be subject to stricter supervision by the CBIRC, similar to that of banks.

In addition, the Draft stipulates that, in principle, the balance of an individual's single-family online small loan shall not exceed 300,000 yuan, and shall not exceed one-third of its average annual income for the last three years; the balance of an individual's single-family online small loan to a legal person or other single-family shall not exceed 1 million yuan in principle.

Since many audiences of Internet small loans, such as students and rural users, do not have proof of stable employment, according to the Draft, these users may be stuck with an annual limit of 10,000 yuan.

At the same time, the Draft points out that in a single joint loan, the proportion of capital contributed by the microfinance company operating the Internet microfinance business shall not be less than 30%.

According to the prospectus, the capital contribution of Ant in the joint loan business is about 1-2%, so it can drive 1.8 trillion yuan of joint loans with a capital of 36 billion yuan. According to the 30% funding ratio, for the same scale of joint loans, Ant needs to fund 540 billion yuan, which will have a huge impact on the credit business in the future.

The Chinese giant Alibaba's shares plummeted, and down 4% by the impact of Ant's IPO suspension. 

This is an article from WeChat official accounts GeekPark (ID: geekpark), written by Jing Yu, translated by Chris Yuan.