China’s Ant Group is taking subscriptions for its envisaged 35 billion dollars dual share offering in Hong Kong and Shanghai and expected to start trading on November 5. According to initial reports, institutional investors in Shanghai have indicated an interest in 76 billion shares which would mark an oversubscription of almost 300 times. HK’s book has equally been flooded with orders and will be closed later today, earlier than planned. Ant may exercise a greenshoe option and price a total of 40 billion.
Needless to say that this is the biggest IPO in history, and it is, by all means, remarkable that the entire listing will be on Chinese soil and New York’s and other Western exchanges are not involved. Only a couple of years ago this would have been unthinkable. The world is clearly changing. The East is rising, and the West better make sure it will not be left behind. Despite all the political troubles Hong Kong has proven to be the most successful stock exchange in the past 12 months, by a margin.
Global investors have been pouring funds into Hong Kong to get exposure to mostly Chinese companies that have either IPO-ed on the NYSE in the past but over the past year sought a secondary listing in the former colony to hedge against the brewing geopolitical storm or the ones that ditched New York right from the outset and opted for Hong Kong as the safer place to go public. The HKMA is having its hands full to print Hong Kong dollars to keep the US dollar peg intact.
No cheap attempts out of Washington to ban or apply restrictions against Ant and main shareholder Alibaba will derail the project. Ant, like a number of other Chinese fin- and insure-techs, will not be intimidated and forced to play by the traditional playbook the West once introduced as a global standard. To watch the IPO unfold is certainly exciting, and many lucky ones who get allocations will probably make immediate money, but this is only the visible tip of the iceberg.
You might have seen the write-up in the
FT over the weekend, when Jack Ma at a Shanghai conference spectacularly blasted international financial regulations, likened the Basel Accords to an “old people’s club”, and said that China needed to chart its own path and “couldn’t use yesterday’s methods to regulate the future”. Of course, Jack as the controlling shareholder of Ant is talking his own book, and as a Communist Party member is a perfect mouthpiece for a national financial agenda.
But Ma is known for simplicity in language when he brings things to the point, and his point is valid. As he said, many of the world’s problems stemmed from only talking about risk control but not talking about development and not thinking about young people’s opportunities. China has almost 1/2 billion of citizenry without formal bank credit histories. Small- and medium-sized enterprises have struggled to obtain loans from state-owned banks.
In his remarks, Ma propagated an ecosystem of, as he put it, “lakes, ponds, streams and brooks” that represent a necessary diversity of channels directing capital into the different corners of the economy. While the Basel Accords required banks internationally to keep sufficient collateral to absorb potential losses, he also urged to move away from banks taking such collateral for loans and toward credit-ratings based on big data.
And big data is undoubtedly a massive advantage for large fintech companies in China. Properly gathered and employed the Chinese data pool is more than 4 times America’s. Jack Ma may well be at the forefront of and leading a revolution in the field of finance, not just in China but globally. Payment methods and processes have for a while now been miles ahead of the rest of the world. The area of financing on a grander scale and building a new ecosystem, as Ma says, may well be right before us.
Naturally, there will be resistance from incumbents that see a more agile and versatile structure take over. There will also be the geopolitics which will not make it easier for Chinese leading companies in the field to intrude into foreign markets. Ant will have to swim against the tide for a while longer. But the finance sector is ripe for massive reform, and fintechs such as Ant will be charging ahead into a brave new world, and it will only be a matter of time before others latch on to it and the tide turns for good.
Again, Ant’s IPO is grandiose and jaw-dropping, but the underlying message is much more significant than the company going public. Global investors who value Ant to be bigger than JPMorgan seem to think that Jack Ma is on to something…
