Thoughts on Ant Financial’s IPO

and what the meeting with regulators means

Recently, the media has been abuzz with how Jack MA's Ant Financial (ANT) has been summoned by the Chinese regulators just before the unicorn's record-breaking IPO of raising more than US$34B.

A lot of commentaries has focused on how it derailed Jack MA’s plans for the IPO and even 'cost him US$35B'.

However, the truth can be deeper than that.

1. The first thing to note is, ANT and WeChat are probably the only 2 companies in China that are holding on to other people’s money without a banking license. The amount they hold individually is much larger than what some of the smaller banks have in their reserves.
2. regulatory comments and documents can’t be coming out of thin air. It is most likely that it has been formulating or formulated for at least half a year and even 1-2 years ago. After all, it has always China’s plans to ultimately open up its financial market in tandem with its economy’s growth
3. During this process, the domestic Internet giants, ATM（Alibaba-Tencent-Meituan), are likely to be aware of and even participate in the process.
4. MA’s speech and how several major regulatory departments converge on 'regulatory supervision' shows that all these are planned for. On ANT’s side, the initial speech is most likely just a pre-emptive response for future regulatory documents that may be released in the future.
5. More importantly, through this regulatory supervision, ANT got what they wanted.

• Through the joint supervision of four ministries and commissions, ANT is recognised as a financial institution.
• In the future, ANT will be uniformly supervised by China’s financial system like national banks. ANT is no longer a "technological lending agency." ANT can engage in other finance activities or markets. ANT will be a competitor to banks challenging their traditional modes of distribution and businesses practises.
• Through this supervision, ANT has taken the lead and opened a gap with other competitors. We are unlikely to see a repeat of creating loans worth 3 trillion with a capital of only 3 billion. At the same time, if other competitors (the Internet giants) in the market want to catch up, it is no longer just a question of having sufficient capital.
• The micro-financing market in China is huge. It will take a lot of hard work just to cover one province alone. And ANT, with the capital that they have raised so far, and the possible long-run regulatory protection will hit rising competitors like Pinduoduo and Douyin. If we put it in another perspective, ANT’s future Internet finance business has a certain degree of monopoly.

Through this supervision, the regulatory authorities also got what they wanted:

• It guaranteed that the next ANT will not appear on the market soon, and the risks associated with Internet microfinance are under control.
• Distinguish vested interests such as ANT and Tencent from the rest who could be strong challengers down the road. On one hand, it increases the tensions between them. On the other hand, it lays the foundation for divide and rule.

Now that ANT has been identified as a financial institution, so is there a problem with the valuation basis of it as a technology company? The IPO only raised a total of US$32 billion, which is not enough to run such a financial business. It is conceivable that, like banks, ANT will follow the proven path of continuous large-scale growth in different segments to gain revenue and profits.

This post first appeared on my Substack newsletter, Startups Weekly.