For these reasons, the rating for Ant Group’s IPO could be...

It was a shock for investors worldwide: Just a few days before the supposedly largest stock market debut in the world, Alibaba financial offshoot Ant Financial canceled its double IPO. Experts agree that this could also have a major impact on the evaluation of fintech.

• Ant-IPO surprisingly canceled
• New Chinese regulations could lead to restructuring at Ant
• Realignment of online lending is likely to lead to valuation losses

It should have been the largest IPO in the world: On November 5, 2020, the Chinese mega-fintech Ant Financial should have made IPO history with a double listing on the Shanghai STAR Board and the Hong Kong Stock Exchange. Ultimately, proceeds of $ 34.5 billion were expected on the stock market debut, which would have been more than the $ 29 billion that the oil giant Saudi Aramco had earned with the IPO.

However, two days before the big day, the turn came unexpectedly. The Alibaba trainee pulled the ripcord and completely surprisingly canceled his double IPO. The reasons for the drastic step were initially unclear, but it soon became known that new regulations in China were behind the cancellation. You have to know that the Ant Group specializes in granting loans, insurance and asset management.

Chinese regulators take on Ant’s online lending

The sticking point for the Chinese supervisory authorities is the online lending business in particular. In contrast to a conventional bank, Ant Financial only finances two percent of the loan itself, 98 percent is provided or secured by the company’s around 100 banks and financial partners. According to the new regulations of the authorities, this minimum percentage is to be increased to 30 percent. A step that should have a massive impact on the business model of the Chinese giant fintech. Because with the new requirement, the Ant Group would be forced to hold more capital and the previous “capital-light” model would have to give way.

As Morningstar’s Iris Tan said in a customer report, this could mean that the Ant Group would have to hold an additional 50 to 90 billion yuan in the future. Although fintech has the necessary capital cushion at its disposal, it could reduce the tech company’s growth prospects.

Valuation halved through restructuring?

The restructuring has far-reaching consequences, as many analysts agree – which will also affect the fintech’s valuation massively. So far, the double IPO at Ant Financials was assumed to be valued at around 313 billion US dollars. However, this has now been corrected downwards by various experts. Eric Schiffer of The Patriarch Organization assumes that the change from a tech fintech to a “capital-intensive regulated bank” could cut the valuation “more than half and below 150 billion US dollars”, as he reported to CNBC.

David Hsu of the University of Pennsylvania’s Wharton School also assumes that the rating would have to be adjusted as a result of the restructuring of online lending. Ultimately, the new regulation would move the Ant Group away from a “tech company selling tech services into a kind of bank that secures loans with their balance sheets. The view of valuation will also be affected because of the results of tech multiples are much higher, “Hsu told CNBC.

Tan assumes that Ant’s valuation could drop 25 to 50 percent if the price-to-book ratio falls back to the level of the world’s top banks from before the IPO, according to Bloomberg the analyst.

But not all experts are so pessimistic. Bernstein analyst Kevin Kwek can imagine that Ant would achieve a lower rating, but in his opinion it should not fall to a level of bank multiples in view of the technology and the payment app AliPay that Ant Financial owns and that on Billions of cell phones are installed, as Bloomber Kwek indirectly quotes.

It remains to be seen how things will actually go on with China Fintech. There is also little new information about the IPO plans so far. However, as the Financial Times recently suspected in a press release, the IPO could be postponed by at least six months. That is how long it takes to prepare a new stock exchange prospectus that is adapted to the new regulatory framework.

Finanzen.at editors