China halts $37bn Ant Group IPO, citing ‘major issues’

China has suspended the $37bn listing of Ant Group, which had been set to become the world’s largest IPO, one day after regulators had grilled Jack Ma, who founded the company.

China’s largest financial technology company was set to list on Thursday in Shanghai and Hong Kong in a record-breaking IPO that had attracted huge interest from institutions and smaller investors.

The Shanghai Stock Exchange said in a statement that Mr Ma, who also founded Alibaba, had been called in for “supervisory interviews”. There had been “other major issues”, including changes in “the financial technology regulatory environment”, the stock exchange said.

“This material event may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements,” it added. “Our exchange has decided to postpone the listing of your company.”

I’ve never seen an IPO suspended at this stage

The exchange told Ant and its underwriters, which include Goldman Sachs, JPMorgan and China International Capital Corp, among others, to release the news about the suspension.

Ant was founded by Mr Ma in 2004 as Alipay, an arm of Alibaba, and was spun out as Ant in 2014. Since then its payments business has become the largest in the world, outstripping Visa and Mastercard as it processed $17tn of transactions in the year to June.

Ant said in a statement that its Hong Kong share offer had also been suspended because of “material matters relating to the regulatory interview” of Mr Ma and other executives.

It added that investors would be refunded “application monies” relating to the IPO.

One broker in Hong Kong said the suspension would cause “quite profound” damage for retail investors. “I’ve never seen an IPO suspended at this stage,” said a director at one Shanghai-based brokerage, who suggested it was a “very last-minute thing”.

“It’s in no one’s interest to cancel the [completed share] allocations at this stage,” the director said. “I don’t think there’s any precedent for this type of situation.”

Bright Smart Securities, a prominent Hong Kong broker, initially said that retail investors would have to fork out for interest rate payments on margin loans they had taken out to boost their exposure to Ant shares. However, it reversed this position on Wednesday and said interest expenses would be refunded.

The move disappointed Hong Kong's retail investors but a number of major brokers said they would take on the losses. After initially suggesting investors would have to swallow the interest paid on the significant amounts of margin lending borrowed by retail traders to buy the shares, Hong Kong brokerage Bright Smart Securities said these expenses would be refunded.

Shares in Alibaba, the Chinese ecommerce group which owns a 33 per cent stake in Ant, were down as much as 9 per cent in early trading in New York. A spokesperson for the company said it would be “proactive in supporting Ant Group to adapt to and embrace the evolving regulatory framework”.

Ant apologised to investors and said it would “keep in close communications with the Shanghai Stock Exchange and relevant regulators . . . with respect to further developments of our offering and listing process”.

At the end of October, Mr Ma criticised China’s state-owned banks at a financial summit in Shanghai. He suggested the big lenders had a “pawnshop mentality” and that Ant was playing an important role in extending credit to innovative but collateral-poor companies and individuals.

Mr Ma, together with Eric Jing and Simon Hu, Ant’s chairman and chief executive, on Monday were interviewed by the People’s Bank of China, as well as the country’s banking, securities and foreign exchange regulators. Ant subsequently said it would “implement the meeting opinions in depth”.

A commentary posted on the websites of prominent Chinese state media outlets including People’s Daily late on Tuesday said the suspension of Ant’s listing would “safeguard the rights and interests of financial consumers” and investors. “The top priority of the Ant Group is to earnestly rectify and reform according to the requirements by regulatory authorities,” it added.

Guo Wuping, an official at the banking regulator, advocated greater regulation of Ant and other financial technology companies in an opinion piece for state media on Monday, noting their consumer lending products charged higher fees than credit cards issued by banks.

Mr Guo said fintech companies often lured young people into overspending so that “some people in low income groups and young people fall deep into debt traps”.

The PBoC and China’s banking regulator jointly released new draft regulations on online lending on Monday, which will oblige Ant to cap loans at either Rmb300,000 ($44,843) or one-third of a borrower’s annual pay, whichever is lower. The rules could also make issuing loans across the country’s provinces harder and analysts say they may dent Ant’s bottom line.

Additional reporting by Primrose Riordan in Hong Kong