The Biggest IPO Ever
There will be no doubts that Ant Group’s IPO will exceed the one of Aramco (Saudi Arabian Oil Co.) after the Chinese fintech behemoth announced plans to raise $34.5 billion. Aramco generated $29.4 billion from its IPO to overtake Alibaba’s 2014 public listing.
Investors are hoping that Ant will continue to rise at a rapid pace in order to live up to the $312 billion market valuation. For comparison purposes, the banking and investment giant J.P. Morgan has a market capitalization of over $308 billion, according to Yahoo Finance.
"It was like the flood gates just opened," NikkeiAsia quoted persons with knowledge of the situation. "Investors' appetite has been overwhelming. Orders keep pouring in."
Earlier, Ant Group announced it has opted for dual listing in both Shanghai and Hong Kong with the same number of shares at each exchange. As much as 97.5% of the shares issued in Hong Kong will belong to institutional investors.
Ant is expected to make its trading debut on November 5th after its IPO was approved by Chinese and Hong Kong-based regulators. The Shanghai portion of the stock is priced at ¥68.8 ($10.26) per share, while in Hong Kong, shares are priced at 80 Hong Kong Dollars ($10.32) each, which represents the 24 multiples of the estimated 2022 adjusted earnings pitched to investors.
Strategic investors will subscribe to 80% of Ant’s A-shares listed in Shanghai, with Alibaba planning to purchase 730 million A-shares through its branch Zhejiang Tmall Technology, allowing it to uphold its current 33% stake in Ant Group.
Impressive Financials and Challenging Environment
Ant generates a lot of revenue from connecting users through its Alipay app with financial institutions from which it collects fees. In order to uphold its first-half 27% net profit margin, the group would need to overtake its peers and snatch a larger share from vendors. If fees stay relatively flat, the company would have to boost its market shares.
"The biggest challenge to Alipay in recent years is the fact that mobile payments have become very social," Zennon Kapron, Director of Kapron Asia told S&P Global Market Intelligence.
"Alipay has its work cut out for it ... although I wouldn't go so far as to say WeChat Pay will replace Alipay's dominance."
The company has recently reported its financial results for the first nine months of this year, which showed that the number of its active Alipay users has surged from 711 million in June to 731 million in September.
Also, revenue during that period amounted to ¥118.19 billion ($17.73 billion), marking an over 42% surge on a year-over-year basis.
Potential Challenges With US-Based Companies
Recent reports suggested that the Trump administration is considering blacklisting Ant Group by adding the company to the so-called “Entity List,” which bans US companies from collaborating with firms or individuals on that list.
In order to conduct business with listed parties, American companies are obliged to obtain a license. However, some experts believe that blacklisting Ant Group wouldn’t significantly affect Ant’s businesses nor its forthcoming IPO, as the firm is running its operations mostly in the domestic market.
“The trade blacklist is largely symbolic. It won’t be effective in stopping Ant from either going public or investing in critical areas (i.e., blockchain),” Abishur Prakash, a geopolitical specialist at the Center for Innovating the Future (CIF), told CNBC.
“But, the blacklist is effective in another respect: making other countries cautious about linking their tech ecosystems to China,” he added.
The China-based fintech behemoth Ant Group plans to close its book-building process a day sooner than planned due to huge demand for its upcoming IPO, which will be the largest in history. However, the company will have to grow at a robust pace in the coming years in order to justify its $312 billion market valuation.
About the Author
Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.