Ant Group faces US headwinds in race to IPO

A week gap in the HKSE hearing between the pricing of an IPO and the start of trading means investors could face an increase in market volatility

HONG KONG • Jack Ma’s Ant Group has a narrow window to make its much-anticipated market debut ahead of US election turbulence. Now its bankers must grapple with any potential delays stemming from a debate in Washington over restrictions on the payments behemoth.

Discussions over how and whether to restrict Ant — as well as Tencent Holdings Ltd’s payments systems — have accelerated among senior US officials in recent weeks though a decision isn’t imminent, Bloomberg reported.

They come as Ant is expected to raise about US$35 billion (RM145.25 billion) from simultaneous IPOs in Shanghai and Hong Kong as early as this month. China’s biggest payments company already has approval for its mainland listing, but is waiting for a hearing with the Hong Kong Stock Exchange (HKSE). That green light would need to come roughly by the middle of October if Ant aims to beat the US presidential vote on Nov 3.

The Hong Kong hearing before a 28-member panel of external professionals was expected last week, but has yet to happen. If it’s delayed much further, the IPO risks straddling the US election where some expect a surge in postal ballots to create a prolonged period of uncertainty. The one- week gap in Hong Kong between the pricing of an IPO and the start of trading means investors would be left exposed to an increase in market volatility.

Ant is said to be targeting a valuation of US$250 billion, which would make it one of the world’s most valuable financial firms ahead of Bank of America Corp. Its attraction rests on its reach into the pockets of more than 700 million monthly users, most of whom are in China where the ubiquitous Alipay app offers everything from loans and travel services to food delivery. Still, potential US restrictions would raise questions about Ant’s overseas ambitions and could hurt its relationships with American firms.

“Ant’s business is mostly in China and is self-sufficient,” said Ram Parameswaran, founder of San Francisco-based Octahedron Capital Management LP, which owns shares in Ant’s affiliate Alibaba Group Holding Ltd and plans to invest in the IPO. “It is highly unlikely that US financial institutions will be banned from doing business with Ant.”

Ant declined to comment in an emailed statement.

Potential options the Trump administration could consider range from a US ban to the far more damaging possibility of putting Ant on a specially designated national list, which would turn one of China’s crown jewels radioactive for any US company.

Its guideline for Tencent’s instant-messaging app WeChat could offer clues to how the US might handle the payment platforms. It has allowed US companies to continue working with WeChat outside of the US.

Institutional investors in the US will have less of an impact on the demand-supply equation with Ant as the listings are focused on Hong Kong and Shanghai, Parameswaran said.

Singapore’s sovereign wealth fund GIC Pte Ltd plans to invest more than US$1 billion in Ant shares, according to people familiar with the matter. State investor Temasek Holdings Pte Ltd, China’s US$318 billion National Council for Social Security Fund and Saudi Arabia’s Public Investment Fund are among those who’ve been reported to be weigh- ing investments.

Early feedback prompted Ant to decide against locking in cornerstone investors for the Hong Kong leg, confident there would be plenty of takers, people familiar have said.

“There is great demand from clients and global asset managers,” said Joel Ng, an analyst at KGI Securities (Singapore) Pte Ltd. “Most of Ant’s business is in China and the rest of Asia so US restrictions will not be a huge deal.”

According to Ant’s IPO prospectus, it gets less than 5% of its revenue from outside China. And only a tiny portion of that is from the US, a person familiar has said. Even so, a ban on Ant doing business in the US could curb the potential for growth in the future.

With a dominant position in China, Ant has been spreading its reach into the rest of Asia, where it is working with digital payment providers in India and Thailand, as well as peddling its expertise in wealth management and risk controls.

“The domestic market is quite penetrated already by Ant and WeChat Pay, so the future growth is going to have to come through international expansion,” said Martin Chorzempa, research fellow at the Peterson Institute for International Economics. “The key question for a Chinese financial technology is whether it can expand internationally.” — Bloomberg