Not So Tiny Insects: Ant Group Considers IPO
November 10, 2020
3 min read
What's going on here?
Chinese fintech Ant Group seeks an IPO to help fund its global expansion.
What does this mean?
Ant is a payment platform which also provides services such as credit, investment, and insurance. The company, which is already extremely successful in China, has sought to go global. However, since setting out on global expansion plans 4 years ago, the fintech has struggled to meet expectations. Currently, its international revenue amounts to less than 5% of the company’s profits and so the company hopes that an IPO will put it back on track.
As of 20 October 2020, the company had gained the approval of the Shanghai Stock Exchange for the IPO. However, on the 3rd of November, new Chinese regulations suspended the listing. In the future, the company plans to hold a digital roadshow ( a series of promotional presentations made in the lead up to an IPO) of at least 3.5 days in order to pitch shares to investors. The company plans to raise $35bn from the IPO with 10% of this going towards the global expansion. This would be the world’s largest IPO and could value the company at around $280bn.
What's the big picture effect?
Ant had planned to list on both the Shanghai and Hong Kong Stock Exchanges simultaneously in order to maximise impact. Beijing intervened because of concerns that Ant Group would not be able to meet the listing conditions or disclosure requirements. Following this action, it is reported the IPO could be delayed by at least six months.
By holding digital roadshows, rather than in person, Ant will be able to present to international investors despite travel bans. Further, it will allow the company to meet larger numbers of potential investors in a shorter time frame – this holds additional benefit for Ant which is seeking to try to avoid increasing financial volatility with the approach of the US election.
The market could be volatile in the lead up to the listing as investors sell off their shares in other companies in order to have the funds available to invest in Ant. However, some large investors may have already lost their opportunity to invest in the company as a result of a widespread Chinese practice which provides that investors can only invest in a company on the basis that they promise not to invest in any rivals or competitors. In addition to preventing the leak of sensitive information and avoiding conflicts of interest, the practice also aims to prevent competitors from gaining access to funds – a means of blocking competition. Therefore any investors which have already invested in Ant’s competitors, such as those in the Tencent group, may not be able to take advantage of the IPO.
The question is whether, with enough funds from a successful IPO, the company will be able to make moves into the international market. The group formed out of Alibaba’s mobile payments platform “Alipay” which dominates the online finance market in China and with approximately $2.7bn in revenue in 2019. However, internationally Ant does not have such a hold on the market, with customers outside of China more likely to use credit cards or payment plans such as that offered by Klarna to pay for their goods.
In addition, outside of Asia there is growing suspicion over Chinese activities, and this could further hinder Ant’s expansion plans. The US and Europe, in particular, may harbour too much scepticism against a Chinese technology company to allow Ant to enter the market too strongly. The Trump administration has considered placing the company on a trade blacklist over national security concerns. This could implicate Ant’s partnerships with US companies such as Mastercard if they are forced to stop dealing with Ant. The company’s best bet may therefore be to continue the focus on growth in the South East Asian markets before moving elsewhere or until tensions subside.
Regardless of whether or not Ant is able to make a success of its global expansion, what is clear is that fintech continues to develop at rocketing speeds, and there is sure to be something similar or better available to consumers over the world within a relatively short period of time.
Report written by Julie Lawford.
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