Chinese President Xi Jinping Personally Suspended Alibaba’s Entry into the Exchange
The initial listing of the fintech giant Ant Group was supposed to be the largest in history and bring the founder of the company and China’s richest man, Jack Ma, tens of billions of dollars. However, the Chinese authorities thwarted the placement – just a few days before the IPO, the businessman was summoned to Beijing for a supervisory interview. As a result, the shares of Alibaba, which owns a third of Ant Group, have lost more than 11 percent since the beginning of November (at the moment, the fall reached almost 20 percent), and Ma has lost $ 3.2 billion (as of November 28). The media explain what happened by the fact that the emboldened billionaire crossed the road to the closest associate of Chinese President Xi Jinping and that the head of China personally suspended Ant Group’s entry into the exchange.
Despite the fact that Ant Group has been known under its current name only since the summer of 2020, the company has a long history. It is one of the key assets of e-commerce giant Alibaba Group, founded by Chinese entrepreneur Jack Ma and 17 other partners in 1999. Ant Group grew out of Alipay, a payment system that emerged in 2004. Alipay became the center of the entire ecosystem of the Alibaba Group – it was used to make payments on both the Alibaba marketplace and the Taobao online store.
In 2011, Alipay was spun off from the Alibaba Group. It was owned by Zhejiang Alibaba E-Commerce Company, 80 percent of which was controlled by Jack Ma and 20 percent by Alibaba co-founder Simon Se. Three years later, the company changed its name to Ant Financial Services Group (in 2020 the name was shortened to Ant Group) and continued to expand into new niches. Alipay Wallet, the Yu’e Bao short-term bond and fund investment platform, Zhao Cai Bao open platform for investment and financial products, Ant Credit microloan service and MYbank online bank were launched.
The expansion of the company quickly expanded beyond China. In 2016, Southeast Asia’s largest payment processor Ascend Money was purchased, and a year later Ant Group acquired HelloPay, another major player in the region. In the same 2017, Ant Group increased its stake in the Indian payment system Paytm to 50 percent and invested in Kakao Pay from South Korea. This was followed by investments in companies from the Philippines and Indonesia.
Deal of the century
All this increased the price of the company. For the first time, Ma thought about listing Ant Group on the exchange back in 2016. Then Eric Jing became the CEO of the company. At the same time, Lucy Peng, who previously held this post, remained in the company as the executive chair. Jing’s main task was preparing the company for the IPO, and he did an excellent job with it. If in 2017 the company was estimated at $ 75 billion, then in 2020 it was already about much larger amounts.
At the beginning of the summer, the Ant Group’s capitalization was estimated at $ 200 billion, but in August the bar soared to $ 225 billion. In October, Ma raised rates altogether to $ 280 billion. The IPO itself caused quite a stir. Ant Group’s placement was supposed to take place on November 5 and would be the largest in world history. The volume of the deal could have amounted to 34 billion dollars, while the demand from investors was 870 times higher than the supply.For China, a special role was played by the fact that the company was going to conduct an IPO on Chinese exchanges, and not in New York or London. One of the advantages of Ant Group was its status as a technology platform, which prevented the company from falling under the same strict rules and regulations as banks. The People’s Bank of China tried to take over the Ant Group five years ago, but then Jack Ma’s connections helped. Perhaps there would not have been a new attack on Ma’s empire if he had not attracted the attention of the country’s top leadership.
Jack Ma’s speech in Shanghai, which took place on October 24 – less than two weeks before Ant Group’s IPO, had the effect of a bomb. The conference was attended by the full bloom of Chinese business, and Ma took advantage of this to publicly launch an attack on financial regulators. “The Basel Accords are like a club of old people […] We cannot use yesterday’s methods to regulate the future,” Ma said, referring to the agreements that govern the banking sector.
The Basel Committee on Banking Supervision is an organization that develops uniform standards and methodologies for regulating banking activities adopted in various countries. For the first time, a set of rules called Basel I was developed in 1988. In 2004, it was supplemented by Basel II, and after the global financial crisis in 2008 – Basel III. In 2017, Basel IV standards were agreed, which radically change the regulatory structure for financial institutions.
The financial authorities of China drew attention to the ratio of borrowed capital to the company’s own funds and considered the situation too risky. During an explanatory conversation, which, in addition to Ma, was also attended by the CEO and chairman of the board of directors of Ant Group, they were informed that the authorities will now closely monitor the company’s activities. Now Ma will be forced to submit to even stricter rules – instead of becoming richer, the billionaire has lost part of his fortune.
Money down the drain
Information about the postponement of the IPO brought down the quotes of the parent company Alibaba Group, and with them the state of Ma. The day after the suspension, the company’s shares fell 7.5 percent, and in three weeks, the fall reached 20 percent. According to the Forbes billionaire ranking, which tracks the change in the state of the world’s richest people in real time, the entrepreneur himself lost $ 2.6 billion on this.
In addition, one should not forget about the loss of profits. Ant Group was projected to raise $ 225 billion during the IPO. Jack Ma’s stake was estimated at $ 27.4 billion. Now a businessman can only dream of such money. First, there is no understanding of the prospects for entering the market – at best, it will take several months. Secondly, due to the new rules of Ant Group’s work, there is a high probability that the placement price will be revised. According to analysts’ estimates, during the IPO, the company can now raise half as much – $ 140 billion, which means that Ma will help out half as much for his share.
But there is more behind the attack on the Ant Group than Xi Jinping’s resentment against Jack Ma. The fundamental causes of the conflict are much deeper – Chinese regulators want to take control of the country’s largest IT companies. The PRC’s technology sector has grown almost unhindered in a very soft legal framework. But that era seems to be coming to an end – according to partner at consultancy Trivium China, Kendra Schaefer, Beijing has chosen to maintain a love-hate relationship with its technology leaders, following Washington’s example.
This is also indicated by the fact that following the Alibaba Group, other Chinese companies in the technology sector have lost part of their market value. In two days from November 9 to November 11, the total capitalization losses of the five largest companies in China amounted to $ 280 billion. Investors fear tightening of measures and new attacks from regulators. And they may still follow, because, according to one of the sources, Xi Jinping does not care where a businessman is on the list of the richest people in the world. The chairman of the Chinese Communist Party is interested in what a person does when he becomes rich, and whether he compares his interests with those of the state.