by Bill O’Grady | PDF

Although the U.S. elections were the major story during the first week of November, another notable, but somewhat overshadowed, event did occur, namely, when Chinese regulators forced Ant Group to suspend its initial public offering.  Ant Group, an affiliated firm of Alibaba Group (BABA, USD 294.04), was preparing to launch an IPO.  The listing, estimated to be $37 billion, would have been the largest IPO in financial market history.  The new stock was to be listed on the Shanghai and Hong Kong exchanges, shunning New York and London.  Investors flocked to the expected new issue, leading to a massive oversubscription of 870x, or $2.8 trillion.  The IPO attracted preorders from investors as broad as sovereign wealth funds to individual investors.  Many of those small investors borrowed money to purchase shares.  There were rumors that some Hong Kong broker/dealers were allowing investors to borrow up to 20x their initial stake.

Given these conditions, the decision to pull the IPO was surprising.  In this report, we will offer background on Ant Group.  We will discuss the concerns of regulators and examine the motivations for such a controversial and potentially damaging decision.  This decision will likely undermine foreign investor confidence in China’s regulatory regime and impact Beijing’s attempt to woo investors into China and internationalize its currency.  As always, we will close with market ramifications.

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