FinTech: Ant Group May Lose Half Its Value Following IPO Debacle

November 9, 2020 | FinTech, News
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A Bloomberg report estimates that Ant Group’s valuation could plummet by about $ 140 billion.

Last week, what was to be the world’s largest IPO turned out to be a nightmarish fiasco for Ant Group and Jack Ma. Chinese authorities did not allow the Group’s IPO to proceed and proposed regulatory changes that the fintech, valued around $ 280 billion, would have to comply with.

A report by Bloomberg today warns that the anticlimactic stock debut could chop that massive valuation by half.

The regulatory environment turns on a dime

The new draft regulations proposed last Monday could end the cushy times for the Ant Group. While its micro-lending is currently financed by Chinese banks, Ant would now have to put its own capital on the line to back its lending. The firm may also need to apply for licenses to operate across China according to Bloomberg.

Bloomberg quoted Morningstar analyst Iris Tan to say that Ant could lose as much as 50% of its valuation if it’s price-to-book ratio (pre-IPO) fell to levels more in line with those of top global banks.

Ant currently has 1.8 trillion yuan of loans outstanding. The new rules require at least 30% of funding for loans through owned sources. According to Morningstar, Ant could need as much as 54 billion yuan to maintain its level of lending.

According to Leon Qi, a Hong Kong-based analyst with Daiwa Capital Markets, one option could be for affiliate Ali Baba Group Holding Ltd (NYSE: BABA) to chip in with 20 to 40 billion yuan.

Ant Group a systemic risk?

According to FT, the Chinese authorities could have got cold feet from the amount of potential systemic risk that the Ant Group poses as a credit platform of its size and reach.

With memories of the 2008 global financial crisis still fresh in their minds, the Chinese authorities may have repeated what regulators did at that time – force banks to keep some “skin in the game.”

In the proposed regulation, Ant would necessarily have to carry a chunk of loans on its balance sheet and hold enough reserves to meet any risks from those assets.

Insult to injury

It is ironic that if indeed Ant’s valuation is slashed by as much as $ 140 billion, it would end up being worth less than the valuation it achieved at the time of its last funding round two years ago.

Some of the world’s biggest investors participated in that round, including Warburg Pincus LLC, Silver Lake Management LLC, and Temasek Holdings.

Related Story:  Of Jack Ma’s Foot-in-Mouth, Irate Chinese Regulators, And A Non-Starter $37B IPO

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