Alibaba's Ant Group Should Forget an IPO
- By Panos Mourdoukoutas
Alibaba Group Holding Ltd. (NYSE:BABA) must forget all about its plans to list Ant Group on the Nasdaq-style sci-tech market in Shanghai, according to a Global Times editorial posted on Friday evening.
New rules unveiled by securities regulators set limits on fintech initial public offerings and bar financial investment firms seeking a listing in the market. "The revision is a much-needed effort to align the Shanghai market with China's push for breakthroughs in especially cutthroat technologies, market watchers said," the editorial read.
In November, Chinese regulators canceled Ant Group's planned $34.4 billion IPO in Shanghai's STAR Market and Hong Kong, citing "major" financial technology regulatory issues. Like the nature of its revenue, which would classify it more of a credit company and less of a technology company.
While Ant Group might, indeed, have some regulatory issues, Chinese authorities had arguably another reason to cancel its IPO. The company's meteoric rise threatens China's state-owned banking system, the "honey-pot" of the Chinese government.
Still, Chinese regulators left the door open for Ant's payment service. "If Ant's research and development spending on its payment service hits the STAR Market threshold, the company might take a detour to reconfigure its IPO plans," the editorial noted. Such an IPO would undoubtedly require a new organizational structure, whereby Ant would have to spin off its payment system.
Meanwhile, there are signs that the fintech IPO market is cooling off. Chinese fintech company Bairong's debut in Hong Kong at the end of March flopped, with its shares dropping 16% on its first day of trading.
The bottom line is the window of opportunity for an Ant IPO of any sort may be closing altogether. Like it or not, the company may end up turning into another government-controlled institution, losing its innovative drive.
Disclosure: No positions.
Read more here:
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
This article first appeared on GuruFocus.
