Ant’s IPO Suspension Shows It’s Too Big To Fail Now

By Ye Xie, Bloomberg macro commentator and analyst

The first shock on Election Day didn’t come from the U.S. Rather, it was the news that China suspended Ant Group’s $35 billion initial public offering.

It’s a PR nightmare for Beijing to call Ant’s IPO off on the eve of what would be the world’s largest public listing – especially after Ant spurned New York to list in Shanghai and Hong Kong. It came just days after co-founder Jack Ma criticized regulators for being out of touch and mocked banks as pawnshops. The financial impact was big enough to cause the Hong Kong dollar to fall Tuesday.

The direct trigger may be the recent moves by policy makers to tighten control over online lenders. On Monday, the banking regulator released draft rules that would force lenders to fund at least 30% of the loans they offer together with banks, compared with Ant’s 2% currently.

The timing may be unfortunate, but the message is clear: Safeguarding the financial system has become China’s policy priority again, now that Beijing has managed to put the economy back on its feet even as tensions with the U.S. stay elevated.

At its core, it’s a debate about whether fin-tech companies should be considered financial or tech companies. Regulators think Ant’s business model – using lending and leverage to make money – isn’t so different from traditional banks. Therefore, the company should be subject to similar supervision on leverage and capital requirements.

In other words, Ant needs to be closely watched because it is too big to fail. The numbers speak for itself. Ant’s platforms doled out 1.7 trillion yuan ($255 billion) of loans to about 500 million people in the year through June. It runs the world’s biggest digital payment system, and its Tianhong Yu’e Bao Money Market Fund is one of the world’s largest of its kind with about $173 billion in assets.

What’s next? It is likely that Ant gets the greenlight for listing soon after it achieves regulatory and disclosure compliance. Unwinding an IPO of that size, with subscriptions from the world’s sovereign wealth funds and Chinese pension funds, would be a disaster, as Krane Funds’ CIO Brendan Ahern put it. But it’s unlikely that Ant can get the same valuation now because its expansion has been called into question.

Jack Ma’s nickname is Papa Ma for his vast wealth and influence. On Tuesday, however, it became clear who the real Big Daddy is.