Ant Group and its advisers are getting creative as they attempt to score the world’s largest initial public offering amid a coronavirus pandemic as well as a first-of-its-kind simultaneous listing in Hong Kong and Shanghai.
Known for upending the financial industry across China with its easy-to-use payments app Alipay, the unicorn is now bringing its innovative culture to bear on capital-markets challenges such as meshing together the regulatory timetables and securities’ settlement cycles of two exchanges.
These are ultimately logistical and technical problems for Ant to crack or plan around as it steadily moves forward with its jumbo IPO. China’s regulators remain keen to help a national technology champion secure funding for growth, and investors are clamouring to own its shares.
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Ant’s solutions to the problems it encounters will smooth the path for other Chinese companies looking to tap mainland investors via Shanghai’s fledgling Star Market, and international investors on Hong Kong’s stock exchange.
“The Ant IPO is a major milestone deal,” said Wayne Shiong, a partner at venture capital firm China Growth Capital who owns shares in companies looking to go public on mainland Chinese markets.
The coronavirus pandemic has forced a sea change in how companies conduct capital raising globally this year. Ant’s IPO, given its size, will take the digitisation of deals to a new level.
While Ant’s management and advisers will be able to meet in person with several mainland Chinese investors, given that infection numbers have plummeted from levels seen earlier this year, overseas travel is impractical, people familiar with the process said.
Instead, Ant and its advisers plan to embark on a digital roadshow, speaking over video with international investors. Ant will be able to meet a larger number of investors in a shorter time frame digitally than during a traditional IPO roadshow with a series of pit stops in the world’s financial hubs, one of the people familiar said.
As a result of not having to travel, Ant will be able to compress the traditional month-long marketing sprint into a shorter time frame; reducing execution risk at a time when financial volatility is creeping higher ahead of the US presidential election on November 3.
During the roadshow, Ant’s management will tell the story of the firm’s evolution from a payments app in China, to a financial technology global powerhouse.
One difficulty will be forming a consensus in the investment community around what the company is worth. The Hangzhou-headquartered firm argues that it is worth far more than the sum of its parts, given that its businesses ranging from asset management to insurance products form an integrated platform and feed off each other.
Also, it sits within an ecosystem that includes the e-commerce giant Alibaba Group Holding, boosting its reach and revenues.
At the moment, views on Ant’s worth are varied. The impending IPO could peg the Alipay operator’s value between US$230 billion to US$250 billion, according to several estimates by brokers not involved in the share sale.
At least one pre-IPO investor who has greater insight into the business has marked Ant’s worth up to US$300 billion. Ant’s investment banking advisers will soon send out their analysts’ research to institutional investors, which they hope will crystallise perceptions of Ant’s worth.
The most challenging part of Ant’s IPO is likely to prove to be navigating the regulatory process, particularly winning a listing approval simultaneously in two jurisdictions.
Ant wants to launch a simultaneous IPO on Hong Kong and Shanghai’s stock exchange to maximise the impact of the deal among investors, so that means the paperwork has to wend its way through Hong Kong and Shanghai listing approval process roughly in parallel.
Different procedures have occasionally led to the timetable slipping. A listing hearing committee meeting might not happen at precisely the time expected, or a panel member might throw a spanner in the works by raising an unexpected question.
In Shanghai, Ant had to respond to a barrage of questions from regulators who delved into Ant’s relationship with Alibaba, the owner of the South China Morning Post, to determine if Ant was independent enough to be a viable stand-alone entity.
Regulators also wanted to be clear that Chinese billionaire Jack Ma controls Ant so they could easily hold him accountable if China’s largest payments platform by volume failed in some way. Ma plans to donate his economic interest in Ant to charity but hold onto his voting rights.
Ant is not in control of the timetable while waiting for the final sign-off of its listing papers in both jurisdictions. However, together with its advisers, it has been running scenarios ahead of time, to fine-tune the listing process once given the green light, the people familiar said.
The final hurdle will be Ant’s wish to price the Hong Kong tranche of its share sale and the Shanghai tranche on the same day, then a few days later list on the Hong Kong exchange and Star Market on the same day, the people familiar said.
Over 120 companies are dual-listed in Hong Kong and mainland Chinese markets, but few have tried to simultaneously list given A shares typically trade at a premium to H shares. The world’s largest bank by assets, ICBC, is an exception, having listed its A and H shares on October 27, 2006.
Ant will be the first to list simultaneously on the fledgling Star Market and Hong Kong. To do this, it will have to bridge the wider gap between transaction and settlement for the Star Market than for Hong Kong investors.
Hong Kong averages five days, or T+5 as it is known in financial circles, while on the Star Market, settlement it is within eight working days of pricing. The working solution is for Ant to list on T+6 in Shanghai, so Hong Kong investors will have to wait an extra day for settlement, the people familiar said.
The IPO’s colossal size would have been hard to swallow by just one exchange and will still be an execution challenge to manage smoothly across two. Ant’s IPO is set to smash the record held by Saudi Aramco’s US$29.4 billion IPO last December as the biggest share offering ever. So far, signs are that investors will snap up the shares.
Once Ant lists, the challenge will be to stabilise its share prices. The Star Market has done away with the implicit valuation cap of 23 times price-to-earnings ratio for new listings on mainland markets.
Secondary trading could be choppy as investors sell other companies’ stock in the run-up to the IPO and in the aftermarket to make room for Ant. Star Market’s capitalisation is roughly US$378 billion, and Ant is likely to have the heaviest weighting in Star Market’s benchmark index.
“Ant’s market cap will make it the jewel in the crown of the Star Market,” said China Growth Capital’s Shiong.
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