Financial technology giant Ant Group was gearing up to become the largest IPO (initial public offering) in history. The Chinese government recently proposed new micro-lending regulations that would require the company to hold more capital while making changes to its business model, lowering its potential evaluation by over $150 billion.
The regulatory changes would also make Ant Group look more like a bank instead of a financial technology company.
Alibaba owns one-third of the company, and it is under the control of founder Jack Ma. The initial public listing was expected to raise about $34.5 billion, which would have created a world-record valuation of $313 billion.
The Shanghai Stock Exchange suspended the IPO 48 hours before the listings, reporting that Ant Group was experiencing significant issues.
Were the Regulations a Targeted Effort to Stop Ant Group?
Ending the Ant Group IPO was a shocking move for the financial world. It also came only a day after Jack Ma appeared to criticize Chinese regulators for the move coming from Beijing.
The draft rules released for micro-lending could directly impact Ant Group’s operations. Its most significant revenue driver is something the company calls CreditTech.
Offered loans get independently underwritten by approximately 100 partner financial institutions. Approximately 98% of the credit balance came from this process, allowing Ant Group to consider itself a light capital operation.
The change considered by Beijing would require Ant Group to fund a minimum of 30% of each loan instead of the process followed today.
That’s why the company would need to hold more capital. Instead of being asset light, it would need to function more like a bank. That’s why the evaluation got cut by more than 50%.
Another IPO is likely to happen soon once the regulations get sorted out. Ant Group offers a unique model, a strong payments base, and access to credible e-commerce opportunities. All the company needs is more certainty.