Nov 4, 2020 - Technology

How Jack Ma scuttled Ant Group’s planned $35 billion IPO

Illustrations of ants marching in a downward trend line across a grid

Illustration: Sarah Grillo/Axios

Jack Ma is brilliant. He's innovative. He's one of the world's richest men, and even has a lovely singing voice.

Driving the news: He also made one of the weightiest unforced errors in the history of global business, scuttling what was expected to be a $35 billion IPO for Chinese financial services company Ant Group.

What happened: Ma recently gave a speech he didn't need to give, at least not one he needed to give yet. He compared Chinese banks to "pawn shops," in terms of collateral required for business borrowers, and denigrated the character and convictions of financial regulators.

The regulators this week fought back, because that's what you do when someone spits in your face. They issued draft rules for online microlending and stricter capital requirements, effectively forcing Ant back to the IPO drawing board.

  • Even more crackdowns could be on the way, with Bloomberg reporting that China's top banking regulator "plans to discourage lenders from using Ant’s platforms."
  • Ma is not formally affiliated with Ant Group, but he's the controlling shareholder and former executive chairman of Alibaba Group, which spun out Ant and retains a one-third stake.

What happens next: A source close to Ant tells me that the company still wants to go public, preferably before the Chinese New Year in early February, but admits that the company is reeling from its reversal of fortune.

  • Ant may be forced to sell its microlending business. It may get treated as a depository institution, even though it argues it's just the software-enabled middleman. It may need to answer tough questions about its leverage ratio, particularly without that incoming $35 billion of new equity.

Axios' Felix Salmon writes that Ant "is one of the most systemically important financial institutions in the world, and at the moment it's barely regulated."

  • "All banks are tech companies, but tech can break. It's okay if a single computer crashes; it's not okay if a country's entire financial system goes down. If a technology company is also a systemically important financial institution, then it needs to be regulated just as assiduously as any other financial-services giant," he adds.

Market forces: This episode creates unexpected challenges for Shanghai's new STAR Market, which had positioned Ant as its Pied Piper for other Chinese tech unicorns.

  • It's possible that companies like Didi Chuxing will give STAR a mulligan, believing the Ant situation to be specific to fintech, but it also may take a fresh look at New York.

The bottom line: Ma's misstep could ultimately be rewarded if Ant and Chinese regulators come to a meeting of the minds, and restructure the company in a way that ensures post-IPO compliance for decades to come. But, at the moment, it appears that he fumbled at the goal line.

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