The Pessimist’s Guide to Jack Ma’s Record-Breaking Ant IPO
- Fintech giant is one of the most anticipated debuts in years
- Ant also faces growing regulation and stiff competition
Few initial public offerings have aroused more anticipation than the blockbuster listing of Jack Ma’s Ant Group Co.
Demand for the record $34.5 billion IPO has been so strong this week that Ant decided to stop taking orders from big investors a day earlier than planned. In Shanghai, initial bids exceeded supply by more than 280 times. Some mom-and-pop investors in Hong Kong are taking on 20 times leverage to supercharge their bets.
Still, a smash-hit IPO doesn’t always translate into a long-term winner for investors. In Ant’s case, what could go wrong?
Here are some of the biggest risks:
Regulation
Ant’s meteoric rise was made possible in part by China’s willingness to let it experiment. Now that the fintech giant is a dominant player in everything from payments to consumer lending, regulators are scrutinizing its every move.
They’ve placed caps on the interest rates Ant and other financial institutions can charge for consumer loans, imposed new capital and licensing requirements, and restricted the size of some asset management products, among other measures. Financial regulation in China can be notoriously difficult to navigate, as Ant alluded to in its prospectus: “These laws, rules and regulations are highly complex, continuously evolving and could change or be reinterpreted to be burdensome or difficult to comply with.”
Anatomy of a Chinese Financial Powerhouse
Jack Ma’s giant has shifted toward tech and services
Sources: Ant Group, Goldman Sachs, data compiled by Bloomberg
The risks aren’t limited to China. Ant’s attempt to buy MoneyGram International Inc. was scuppered in 2018 by a U.S. government panel, while India recently blocked the company’s payments service amid rising border tensions. The Trump administration is mulling restrictions on Ant and Tencent Holdings Ltd. over concerns their payment platforms threaten U.S. national security, people familiar with the matter said this month, though any curbs would likely be challenged in court. The increasingly unfriendly stance toward Chinese tech firms is one of the biggest overhangs for Ant’s IPO, said Margaret Yang, a strategist at DailyFX.
“If investors fear further restrictions from the U.S. administration on Chinese tech companies, that might keep them away,” said Olivier d’Assier, head of applied research for Asia Pacific at risk advisory firm Qontigo, referring to the industry as a whole.
Competition
Ant’s Alipay service revolutionized the way Chinese people pay for things, both online and in physical shops. But it didn’t take long for rivals like Tencent to offer competing offerings. Ant’s market share of the Chinese mobile payments business, once around 75%, has dropped to about 55% as of June. A similar battle is now heating up in Ant’s other big money-maker: credit. Tencent has a growing consumer loan business and other tech giants like JD.com Inc. and Xiaomi Corp. are piling in.
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