Chinese billionaire Jack Ma saw his wealth plunge $2.6 billion after regulators abruptly suspended the $35 billion initial public offering of Ant Group—a surprise decision that came just days before the fintech giant had been scheduled to go public through a dual-listing in Shanghai and Hong Kong.
Citing significant changes in the regulatory environment after cofounder Ma and other senior executives were summoned to a joint meeting with four top financial regulators, the Shanghai Stock Exchange decided to postpone the much-anticipated IPO. Alibaba said in a filing that Ant “may not meet listing qualifications or disclosure requirements” in light of recent changes in the fintech regulatory environment. In a public letter to investors, the company said it had decided to halt its Hong Kong listing as well.
The dramatic turn of events caused shares of the New York-listed Alibaba to plunge more than 8% overnight. Its shares plummeted more than 9% in Hong Kong after markets opened Wednesday. The e-commerce giant owns about one-third of Ant Group, which was founded in 2004 first as its payment offshoot but later expanded into markets including insurance, consumer loans and wealth management. Ma, who derives the bulk of his fortune from his 4.8% stake in Alibaba, now has a net worth of $63.4 billion, according to the Forbes Real-Time Billionaire’s List.
Ant Group apologized for the suspension of the listing in the public letter, but didn’t offer a timeline as to when it could be resumed. One possible reason for halting the IPO is to give the company more time to disclose how its sprawling business would be impacted by the changing regulatory environment, Sanford C. Bernstein analyst Kevin Kwek wrote in a research note.
“We don't think Ant's model is fundamentally broken but there now are clear challenges to be addressed,” he wrote.
Regulators appear to be concerned about Ant’s rapidly expanding consumer loan business, which could run contrary to their goal of controlling leverage ratios and safeguarding against financial risks. On the same day Ma was summoned to meet regulators, the government released a set of draft rules targeting online micro lenders, which stipulated limits on the amounts individuals can borrow, and required platform operators like Ant to fund at least 30% of the loans they facilitate on behalf of banks.
The proposed percentage is significantly up from the 2% of loans Ant currently has on its balance sheet. The company has facilitated $254 billion in credit as of June this year, but 98% was underwritten by partner banks, according to its prospectus. It seeks to position itself as a technology service provider, generating revenues as banks pay to use its technologies such as risk-control software when they extend credit.
“Taking more on the balance sheet means moving away from the 'asset-light' model that goes well with tech valuations, and they resemble (a little bit) more a bank,” Kwek wrote in the note. “For investors that believe Ant can manage regulators well…this delay will cast some doubt on that.”