In the midst of a historic election in the US, largely missed by the media was the suspension of the largest ever IPO by a company. The Chinese fintech company – Ant Group was ready to shatter records with a $37 billion IPO on November 5. The Ant Group is led by its CEO – Jack Ma, the founder of Alibaba, widely recognized as the Bezos of China for his success in replicating the Amazon model in China through Alibaba.
The IPO was expected to raise $37 billion, and its valuation was reportedly nearing more than $300 billion, a figure much greater than that of the world’s most established banks, like Goldman Sachs, which has a market cap of $68 billion. The IPO attracted $3 trillion from retail investors and would have given the title of most valuable IPO.
All was well until Jack Ma made some incendiary comments, publicly snubbing China’s regulatory banking rules. Soon after the speech, Mr. Ma was summarily invited to a private meeting in Beijing, given a “yuetan” or a formal reprimand. And the very next day, Chinese regulators suddenly introduced new regulations on online lending, which directly impacted Ant’s lucrative lending and credit business. That online aspect of the firm’s business accounted for nearly 40% of its revenue.
The IPO was pulled, the valuation has been decimated in half and Jack Ma is now back to quietly running Alibaba. Ant Group IPO is on the shelf once again.
Future Wealth’s View
While there certainly are many risks in investing in US companies, what happened with Ant Group IPO is a lesson for all us who underestimate the risks associated with investing in emerging markets. While some Presidents ( I mean, our ex-President) can be vindictive and take extraordinary measures to humiliate people he does not agree with, that is neither the norm in US institutions and nor is it likely to be repeated by future Presidents or politicians alike.
But, of course, China or Russia among others, do not possess democratic systems where there are checks and balances that limit the power of politicians and institutions. Therein, lies the risk of investing in these companies. Can you imagine if Ant Group had gone public and the Chinese government had imposed these regulations when the company’s stock was actively trading in the Hong Kong exchange? The stock price would have quickly gone to zero and likely halted. And just like that, investors’ money would have been gone.
So let’s all say thanks to being able to invest in US markets where regulators are not in the business of botching IPOs. And, lest I forget, let us all invite our next President – Joe Biden to bring decency and decorum to the White House once again.