Hong Kong's windfall from poster boy Ant's impending IPO

Fintech giant Ant Group is about to break all initial public offering records with its IPO in Hong Kong and Shanghai. PHOTO: AFP

HONG KONG - Summer may be over but the financial world is sizzling with an impending historic debut on Nov 5 of groundbreaking proportions.

Chinese home-grown fintech giant Ant Group is not about to be listed in the London or New York stock exchanges. But it is about to break all initial public offering (IPO) records with its IPO in Hong Kong and Shanghai.

On Friday (Oct 30), individual investors in Hong Kong and Shanghai placed bids for at least US$3 trillion (S$4.1 trillion) worth of shares in the group, enough money to buy JPMorgan Chase & Co 10 times over.

Bidding in Hong Kong was so intense that one brokerage's platform reportedly briefly shut down after becoming overwhelmed by orders, while demand for the retail portion in Shanghai exceeded initial supply by more than 870 times.

The closely-watched event will strengthen Hong Kong's position as Asia's IPO hub and inject much vibrancy into the Hang Seng Index, which has lost some ground since the start of the year owing to the global coronavirus pandemic and the market upheavals it has caused.

Ant Group, a financial-services component carved out of multibillionaire Jack Ma's Alibaba empire, is on track to break global records by raising about US$34.4 billion in the world's biggest IPO, surpassing the US$25 billion raised in 2014 by its former parent, Alibaba Group Holding, and the US$29.4 billion raised last December by Saudi Aramco.

This dual listing will turn Ant into one of the most valuable tech companies in the world. It will also make it a poster boy for Chinese fintech firms hoping to follow in its footsteps.

"Hong Kong's edge for massive listings will likely be strengthened, not reduced, by the increasing number of Chinese tech IPOs in recent years," said IG analyst Margaret Yang.

Since tensions between the United States and China ratcheted up in 2018, the Hong Kong stock market has welcomed prominent Chinese tech firms Alibaba, JD.com, Xiaomi and Meituan.

"This trend may continue as Beijing attempts to promote an 'internal circulation' strategy to shed reliance on US trade, technology and even the financial market," said Ms Yang, who added that these additions have helped cushion the benchmark index from external headwinds.

Ant is looking to raise about US$17.2 billion in Shanghai and the same in Hong Kong, with prices set at 68.8 yuan and HK$80 respectively per share. The Hangzhou-based group's valuation is estimated to hit about US$313 million.

Mr Ma, who retired from Alibaba last year and controls Ant with more than 50 per cent of its voting rights, said in late October at a financial forum in Shanghai that this is the first time that such a big IPO was priced outside of New York.

This is something "we wouldn't have dared to think about five, or even three years ago", he said then.

Market watchers say Ant's overwhelming demand from investors both domestic and overseas lends confidence to other private unicorns.

And the repatriation of Chinese-listed corporations - triggered first by Beijing's desire to exert greater control over China's overseas firms and their often wealthy founders and later driven by deteriorating US-China ties - has provided a much-needed morale boost to the Hong Kong market, said Mr Brock Silvers, chief investment officer of Kaiyuan Capital.

"Should the bilateral relationship continue to sour, especially in a second Trump term, the trend may extend from large-cap to mid-cap companies. This would be good news for Hong Kong, especially if that trend can outlast the economic downturns," he said.

On the Shanghai side of the Ant deal, investors include China's national pension fund and fund managers linked to China's state-owned firms, lenders and insurers.

Foreign investors include Singapore's GIC and Temasek Fullerton Alpha, Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority.

Alibaba is set to buy 51.1 billion yuan worth of shares to maintain its stake at around one-third of Ant, while Mr Ma and members of Ant's top management will collectively own about 39.5 per cent of the latter.

Asked about the nuances of Shanghai's involvement in this behemoth deal, Mr Silvers said many Chinese "home-grown champions" opt for dual mainland or Hong Kong listings for a number of reasons.

Mainland listings please Chinese authorities as companies come under mainland regulatory control. Such listings also allow shareholder bases to be enlarged and help companies raise renminbi capital.

But many companies also value the hard currency fund-raising and exposure provided by Hong Kong.

So, for now, these dual listings can blunt US leverage resulting from New York's primacy in global finance, Mr Silvers said.

"Hong Kong has now seemingly transferred from being a Western 'window into China' into being China's 'window to the West'," he said.

And as Ms Yang pointed out, overseas investors may still prefer to trade in Hong Kong's exchange instead of Shanghai due to its ease of access, liquidity, forex exchange and settlement convenience.

Correction note: Individual investors in Hong Kong and Shanghai applied for at least US$3 trillion (S$4.1 trillion) worth of shares in the group instead of snapping up US$3 trillion shares. We are sorry for the error.

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