The IPO of Ant Financial Alibaba’s Ant group, formerly known as Ant Financial, is the largest Fintech company in the world. Like most huge Chinese companies, you might not have heard its name before, probably until a few weeks ago when its IPO, which was going to be the largest ever, was blocked by the Chinese regulator. The company is so valuable because it owns an entity called Alipay – an online payment platform. And it’s not just any online payment system; it’s the world’s largest and most extensive mobile payment system. As of March 2020, it had 1.3 billion users (mostly Chinese, representing 55.32% of the Chinese mobile payment market); by comparison, the more “popular” PayPal has only 365 million users. Before talking about the IPO, let’s explore some of Alipay’s history.
In 2003 Jack Ma launched his online store Taobao, but at that time, there was no trustable online payment mechanism for buyers and sellers on the platform. Buyers had to physically meet sellers and settle transactions in cash, which led to Taobao’s low adoption rates. To solve this problem, Jack Ma created Alipay, which acted as a custodian of the buyer’s money, releasing the funds only when product delivery was confirmed. This new financial intermediary resulted in an increase in trust among buyers and led to a rise in the Taobao user base. However, the platform was still not mature enough for daily transactions. Alipay’s significant boost in consumer adoption came in 2010 when it partnered with the Industrial and Commercial bank of china (the largest bank in the world). They allowed users to store funds in their Alipay account and opened their services to millions of merchants, making it one of the first digital wallets. In Alipay, China’s underbanked population found itself with a much-needed product. Over the years, the company started offering QR code payments in local shops, credit card bill payments, P2P transfer, and most online stores. After the deal with ICBC, Alipay was restructured as a domestic company controlled by JackMa.
What was the next step for Alipay (parent company: Ant Financial)? Go to the public for funds. Ant Financial put up close to 10% of its shares on the Hongkong and Shanghai stock exchanges seeking to raise $34.5 Billion. At about $315 billion market valuation, Ant Group is worth more than the gross domestic product of Egypt ($303 billion) and Finland ($269 billion), and its IPO was going to be the largest ever, taking over Saudi Aramco’s $29.4 Billion. There is some misconception about the largest IPO ever because of the way news channels publish their headlines. You might remember coming across the headline “Saudi Aramco’s $2 Trillion IPO to be the largest ever.” That was referring to the market valuation after the IPO and not the money raised by the IPO.
Investors had placed bids for nearly $3 trillion worth of shares suspended on the Shanghai Stock Exchange (SSE), and the Stock Exchange of Hong Kong (SEHK). Jack Ma, who co-founded Alibaba with $60,000, will become the world’s 11th richest person after Ant Financial’s massive public listing. Jack Ma holds an 8.8% stake in the company, making him the Ant Group’s biggest individual shareholder. His stake is worth $27.4 billion based on the stock pricing in Hong Kong and Shanghai, which will lift Ma’s fortune to $71.6 billion on the Bloomberg Billionaires index.
On the eve of its stock market debut, November 3, China’s Financial authorities suspended the IPO without any apparent reason. It’s rumoured that China’s president, Xi Jinping himself, halted the IPO. Jack Ma recently has been very critical of China’s financial policies, ridiculing the system by saying:
“China is not experiencing systemic financial risks because there is not even a system.”
It’s no surprise that China’s communist party (CCP) has a shallow tolerance level towards criticism, especially from a wealthy private entrepreneur with the power of influencing the population. An interesting thing to note is that Jack Ma is also a member of the CCP, which makes it even worse. It is expected that there would now be a delay of at least six months for the IPO to take place.