- The Shanghai and Hong Kong exchanges suspended Ant Group’s listing on 3 November, two days before its debut.
- It came a day after regulators summoned Jack Ma and two executives, against a backdrop of new fintech regulation.
- The lesson: regulatory risk can upend the calendar of a deal even when everything seems settled.
On 3 November 2020 the Shanghai and Hong Kong stock exchanges suspended the listing of Ant Group, the digital payments and financial services company linked to Alibaba and its founder, Jack Ma. The dual listing was scheduled for 5 November and was to be, according to the media, the largest initial public offering in history, with figures that, according to the sources, ranged between $34.5 billion and $39.7 billion.
The suspension came less than two days before the debut and a day after regulators met Jack Ma and two of the company’s executives. The Shanghai exchange cited, among other reasons, changes in the regulatory environment for financial technology that could prevent the listing or disclosure conditions from being met. Ten days earlier, Ma had publicly criticised regulators at a summit held in Shanghai. For the market it was a surprise, because the deal was far advanced and the whole calendar pointed to its debut.
What an IPO is
An initial public offering, or IPO, is the process by which a company offers its shares to the public for the first time to raise funds and give its shareholders liquidity. It requires a prospectus, approvals from the regulator and the exchange, and a precise timetable for subscription, allocation and the start of trading. If there is no suspension, the debut session sets the first market price, which may differ from the offer price.
If the regulator or the exchange suspends the process at its final stage, those who had subscribed for shares are left waiting: what happens to the funds depends on each exchange’s rules, and the debut date becomes uncertain. It is not usual for a deal already allocated to be halted, which is why the news had such resonance in the markets.
Regulatory risk
The case illustrates a risk that affects any investment: the regulator counts too. In a sector such as digital finance, where rules evolve quickly, a change of approach can alter the business model, capital requirements or the way services are offered. The combination of technology, finance and data attracts special scrutiny in every jurisdiction.
For investors, regulatory risk is hard to measure because it depends not only on the company’s figures but on political and administrative decisions. That is why it should be distinguished from market risk, and why one should not assume that a very large company, or one with official backing, is safe from changes of approach by the authorities. The Ant case also shows that supervision can intensify when a technology company reaches systemic size.
What to review
Anyone with investments in technology companies, or in funds that include them, can review how much of their portfolio depends on the same sector or regulator and whether they understand the risks of the country where their holdings are listed. Fund managers usually detail geographic and sector exposure in each product’s documentation.
This note reports what happened and neither offers nor suggests buying, selling or taking part in any transaction. Any investment decision must be taken with the full information on each product and with advice from an authorised firm, since the firm does not provide investment services. When a deal is halted, the prudent course is to wait for official information and not rely on rumours.
In the markets, the debut date is no guarantee until the session opens.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
