Shanghai exchange cites ‘major issues’ when suspending debut
Ma was called into a meeting with top regulators on Monday
Jack Ma's Wealth Plunges by Nearly $3 Billion After Ant IPO Suspension
It was heralded as China’s answer to JPMorgan -- a homegrown financial giant on the cusp of the biggest stock-market debut the world has ever seen.
Instead, with billions on the line and an initial public offering all but sealed, Chinese authorities have abruptly thrown into doubt the future of Ant Group Co. and its celebrated founder, the billionaire Jack Ma.
Only days before the financial-technology juggernaut was to go public in Shanghai and Hong Kong -- a coup for China’s financial markets that once would have been unimaginable -- the $35 billion IPO was halted on Tuesday after Ma was summoned by regulators. In an extraordinary turn of events, authorities announced that they had belatedly discovered an array of shortcomings that, by some accounts, might require the sprawling Ant to be overhauled.
“The way I’d read it, it’s a deliberate public relations move,” said Sean Darby, chief global equity strategist at Jefferies. “This has happened before when companies appear to have become too big versus the state for the authorities’ liking.”
Reaction in the financial market was swift. Ma’s Alibaba Group Holding Ltd., which owns a third of Ant, plunged 7.1% in Hong Kong, after falling by the most in almost six years in New York. The sell-off reduced Ma’s fortune by almost $3 billion. Hong Kong Exchanges & Clearing Ltd., owner of the city’s bourse, dropped 2.2%.
Jack Ma Photographer: Jean Chung/Bloomberg
The move upends what had been one of China’s biggest business success stories, as well as what was to be a pivotal step in the development of the nation’s fast-growing capital markets.
“It’s definitely surprising,” said Mike Bailey, director of research at FBB Capital Partners. “If there is something strange going on on the macro side for China’s financial markets or in the company, that would be worrisome.”
In just a decade, Ant, an affiliate of Ma’s Alibaba Group, has exploded into the world’s largest financial technology company, reshaping the lives of many ordinary Chinese. But its ascendance -- and Ma’s growing global reputation -- has also posed a threat to China’s state-run lenders and their political benefactors.
Tuesday’s developments left bankers and global investors groping for answers. The immediate fate of the many billions already tied up in the IPO is for now uncertain.
Changes Needed
Chinese authorities didn’t give much detail about the issues behind the suspension, beyond saying that the much-anticipated debut couldn’t go ahead because there had been “significant change” in the regulatory environment.
The company will have to make changes that include capital increases at its lucrative micro-lending units, according to people familiar with the matter. It will also have to reapply for licenses for the units to operate nationwide, the people added, asking not to be identified discussing a private matter.
The IPO is expected to be delayed by about six months, and funds will be returned to investors in the meantime, news portal QQ.com reported, citing an unidentified person.
Major gray market brokers for the deal, including BTIG LLC, told clients all transactions will be canceled, according to people familiar with the matter. Millions of shares were traded in the over-the-counter market prior to Ant’s planned debut, many at about a 50% premium to the listing price of HK$80 ($10.32). BTIG didn’t immediately respond to a request for comment.
Full story at https://www.bloomberg.com/news/articles/2020-11-03/ant-group-says-hong-kong-ipo-also-suspended
Xi’s push against Ma poses new threat to Chinese tech companies
Chinese tech companies did a pretty good job convincing global investors that they operated independently from the Communist Party. Now, Jack Ma has become a case study for the firms’ biggest skeptics.
Companies from Alibaba Group Holding Ltd. to Tencent Holdings Ltd. splashed out billions on overseas acquisitions while developing apps and technologies that challenged Western rivals, with little or no state interference. But Beijing’s pursuit of Ma and his Ant Group Co. after he criticized regulators arguably plays directly into the hands of China’s biggest critics in Washington, who have long asserted that no Chinese tech giant or entrepreneur is beyond the reach of Xi Jinping.
U.S. authorities are now debating whether to ban investments in Alibaba and Tencent, according to people familiar with the matter, in what would be a dramatic blow to two of the companies whose shares are most widely held by global investors. Already on Tuesday, President Donald Trump signed an executive order banning transactions with eight Chinese software applications including Ant’s Alipay, and Tencent’s WeChat Pay, citing concerns that Beijing will have access to the data collected by the platforms. “I stand with President Trump’s commitment to protecting the privacy and security of Americans from threats posed by the Chinese Communist Party,” Commerce Secretary Wilbur Ross said in a statement on the order.
Beijing’s moves could raise pressure on the incoming Joe Biden administration to push through further action detrimental to China, though it’s not clear how much of Trump’s aggressive policies the president-elect will continue.
The party’s sway over business has become even clearer over the past 12 months as Xi pushes to consolidate power ahead of next year’s big party congress, when he’s expected to extend his rule for at least another five years. Covid-19 has only served to strengthen his grip, fueling a war-like campaign to steer the economy back on track and snuff out perceived threats to national security.
“You need to be very mindful of who ultimately controls regulations, who controls licensing -- of who’s in charge,” said Mark Natkin, managing director of Beijing-based Marbridge Consulting. “And if you forget and you start to be overly critical or take too much of a role that normally belongs to the party, then you’re going to get chopped down a notch or two.”
Beijing has moved to fundamentally overhaul Ma’s trillion-dollar internet empire since demolishing Ant’s $35 billion public offering in November, a record-breaking debut that was to have been the entrepreneur’s crowning achievement. Authorities then forced his online finance titan to cap loans and devise a plan to hive off its most lucrative businesses. The government also launched a probe into alleged anti-competitive practices at Alibaba. The billionaire has not been seen in public since November and his absence from the recent taping of an African TV program he created spurred speculation of his whereabouts.
“There is a lot of power in the Chinese government’s economic and financial management infrastructure, and if Ant was going to erode that power, important people would see it as a step too far,” said Graham Webster, editor of the DigiChina project at the Stanford Cyber Policy Center. But “the Chinese government also prizes these leading companies as drivers of technological independence. The party would have to perceive significant threats to tear them down.”
The action against Ma sends the latest signal that Beijing feels emboldened to risk international fallout from measures meant to address domestic challenges. Xi has previously defied threats of U.S. sanctions to impose sweeping national security legislation on the former British colony of Hong Kong. Crushing Ant’s IPO risked alienating a plethora of powerful global financiers from Singapore’s sovereign wealth fund to Carlyle.
The U.S. has also cited concerns about Chinese government influence over private industry to justify its efforts to force ByteDance Ltd. to sell the American share of its TikTok social network and the global campaign to convince allies to swear off equipment made by Huawei Technologies Co. Supporters of such actions often cite Chinese policies such as a 2017 law that requires companies to “support, assist and cooperate” with intelligence agencies.
Like Huawei, Ant has also asserted its independence from the Chinese government, saying in a 2017 application to the U.S. securities regulator that it is “a private sector company and while a handful of Chinese state-owned or -affiliated funds own non-controlling minority stakes, they do not participate in company management.”
The party has long reached into private firms, including foreign ones operating in China. One way it does that is through the presence of party committees in companies, among them tech enterprises, that are made up of employees.
In addition, it dispatches officials to companies to oversee certain activities. Many tech leaders are also party members, including Ma, Lenovo founder Liu Chuanzhi and Huawei’s Ren Zhengfei. Tencent’s Pony Ma and Xiaomi Corp.’s Lei Jun are both delegates to the National People’s Congress.
The party also stepped in on several occasions to punish executives for mismanagement, including Anbang Insurance Group’s Wu Xiaohui.
But recent efforts to exert government influence over companies and intervene in the business landscape have reached new levels. That’s provided fuel to the China hawks in Washington, who argue that the party exerts too much influence over Chinese companies.
Xi needs business executives on his side to achieve strategic goals such as the “dual-circulation” economic plan focused on domestic consumption, developing secure supply chains and reducing reliance on foreign technology. While the world’s second-largest economy was the first to rebound from Covid-19, its recovery is showing signs of peaking even as global growth remains sluggish and ties with the U.S. stay fraught.
In a rare direct plea to the business sector in July, Xi called on executives including those from the tech industry to be more patriotic and help the post-pandemic economic recovery. “Outstanding entrepreneurs must have a strong sense of mission and responsibility for the nation, and align their businesses’ development with the prosperity of the nation and the happiness of the people,” he said.
Weeks later, the party revealed plans to tighten control over the private sector by extending its United Front networking operations further into the business community. The policy will “strengthen ideological guidance” and “create a core group of private sector leaders who can be relied upon during critical times,” according to guidelines published at the time.
“Under President Xi, the CCP has tightened its grip over tech companies and doubled down on its techno-nationalist initiatives,” researcher Alex Capri wrote in a recent report for the Hinrich Foundation. “In addition to placing party officials within prominent companies, it continues to neuter high profile corporate executives where there is the perception that they were operating independently from party directive or becoming too influential.”
https://exbulletin.com/politics/665558/