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Business

Shanghai stock exchange suspends record-breaking Ant IPO

The Chinese fintech giant had expected to raise an unprecedented $35 billion in its stock market debut. But concerns that regulatory oversight could get in the way are now being proven right.

Just two days ahead of what was to be the biggest initial public offering (IPO) ever, the Shanghai stock exchange suspended the stock market listing of billionaire Jack Ma's Ant Group. 

The exchange pointed to recent "major issues such as changes in the fintech supervisory environment" following a meeting between regulators and senior Ant Group executives on Monday.

"This material event may cause your company to fail to meet the issuance and listing conditions or information disclosure requirements,'' the stock market operator said in a statement sent to Ant Group.

The operator of Alipay, China's biggest payment platform, had planned for a dual Thursday debut on stock exchanges in both Hong Kong and Shanghai. The IPO had generated unprecedented demand as investors both big and small clamored to reserve shares of the fintech firm in the lead-up to the IPO. 

The listings had been expected to pull in over $35 billion (€29.8 billion) combined, $6 billion more than current record-holder Saudi Aramco. Over $3 trillion had been raised in early bids for stock by those seeking to claim a slice of the pie. The Shanghai exchange's supply of shares was oversubscribed 872 times over, a company filing showed. 

Responding to the news in a statement, Ant Group apologized to investors for any inconvenience and said that it would follow up on the matter with financial regulators and the two stock exchanges. It said the Hong Kong debut would also be delayed due to the Shanghai suspension.

Fin, tech, or fintech?

The rabid interest in the Chinese company's stock has been particularly noteworthy considering the volatile climate at home and abroad. Those who had raised concerns that increasing regulatory oversight could hamper the growth anticipated by eager investors now appear to be right. 

"Regulatory risks are the biggest risk factor for Ant Group," Kevin Kwek, an analyst at Sanford C. Bernstein, had said in a note ahead of the listing. 

State regulations were recently introduced to counter potential risks in China's burgeoning lending industry, a sector Ant Group has sought to corner. In an unusual move, regulators on Monday summoned Ma and other executives for a meeting ahead of the IPO. With over 700 million monthly users on Alipay, regulators had raised concerns that Ant Group's rapid growth could cause financial instability. 

Meanwhile, a new draft of government rules for online micro-lending is also seeking to regulate companies like Ant similar to how banks are regulated. Citing its army of engineers and programmers as well as its focus on data, Ant has argued it is a technology vendor for financial institutions. But regulators view the company's offerings as financial services. Ma, for his part, has called financial regulation outdated, saying it stifles companies from using technology to bolster financial innovation. Until now seen as a market disrupter, Ant Group could struggle as it's growth forces it to buddy up with regulators

The IPO was also scheduled to take place the same week as the presidential election in a deeply divided US, where political relations with China have deteriorated significantly in recent years. Just two weeks ago, the US State Department in October submitted a proposal to the Trump administration that seeks to add Ant Group to a trade blacklist that makes it more difficult to conduct business with US companies.

The future of finance

Formed in 2004 as the payment processor for Alibaba Group, Ant operates Alipay, the most widely used third-party online payment service provider in China. The company's valuation currently sits at around $315 billion, putting it in line with American financial service providers Mastercard and JP Morgan Chase.

Alibaba had planned to retain a third of its shares following the IPO, with Ma and other top executives retaining control of 40% of the company. 

Hailing from one of the most rapidly growing digital economies in the world, Alipay and Ant systems have far outpaced international peers in volume and value of payments handled. Alipay handled a whopping $17 trillion in transactions in the 12 months ending this past June, compared to US-based PayPal's $712 billion. On the Singles Day Shopping holiday in China last fall, Ant systems was at one point processing 459,000 payments a second. US financial services company Visa can handle 65,000 transactions a second. 

"Ant Group is so valuable because Alipay is used on a day to day basis by a billion people on all of their purchases,''  Shaun Rein, founder and managing director of China Market Research Group in Shanghai, told AP. "The scale of fintech in China dwarfs the regular financial transaction potential in the United States."

"Think of Alipay as Visa, MasterCard, Citibank, Fidelity, all rolled up into one," he said. "On the Alipay platform, you pay for things, you buy insurance, you buy wealth management. Your whole life revolves around Alipay.''

China's time to shine

The record-setting IPO has shone a light on Chinese firms growing prominence on the international investment scene and on China's ability to mobilize capital from within its own borders. 

Speaking on Saturday, Ma said it was "the first time that such a big IPO was priced outside of New York City, which we wouldn’t have dared to think about five, or even three years ago."

Nearly half of all IPOs seen this year have come out of Shanghai, Shen Zen and Hong Kong. Ant Group's decision to debut on the stock exchanges in Shanghai and Hong Kong also follows a trend of Asian companies choosing to first list in their home countries. 

Both prominent money managers and mom-and-pop investors contributed to the unprecedented demand for Ant stock. A smaller-than-average minimum lot size of 50 shares, equal to around HK$4,040 ($521, €445) attracted a significant number of individual investors, with many taking advantage of record-low interest rates to buy Ant shares with borrowed money. One brokerage in Hong Kong briefly saw its platform crash due to the heavy traffic.