Author: Zhang Sainan
The IPO process was suddenly suspended, which made ant group rush to the forefront of the storm overnight. Not only did the listing prospect fall into a maze, but how to deal with this major change has become the focus of market attention.
According to the announcement of the Shanghai Stock Exchange, there are two main reasons for the suspension of the IPO of ant group. One is that the actual controller, chairman and general manager of the company are jointly supervised and interviewed by relevant departments; the other is that the financial technology regulatory environment in which the company reports has changed. Such major event may lead to the company’s failure to meet the listing conditions or information disclosure requirements.
The impact of the two issues is the most prominent hot issue investors want to know.
Is supplementary disclosure necessary in regulatory interview?
According to the CSRC, on November 2, the people’s Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of foreign exchange held regulatory interviews with Ma Yun, chairman of the board of directors Jing Xiandong and President Hu Xiaoming of ant group on November 2.
One stone arouses thousands of waves, which leads to a heated discussion in the market: is it necessary to disclose the senior executives of the proposed IPO companies to be supervised and interviewed?
According to Article 5 of the measures for the registration and administration of initial public offering of shares on the science and technology innovation board (for Trial Implementation), as the first person responsible for information disclosure, the issuer shall be honest and trustworthy, and fully disclose the information necessary for investors to make value judgments and investment decisions according to law. The information disclosed must be true, accurate and complete, and there shall be no false records, misleading statements or major omissions. At the same time, Article 34 of the special chapter on information disclosure stipulates that “any information that has a significant impact on investors’ value judgment and investment decision-making shall be disclosed by the issuer”.
From this point of view, whether the interview involves significant information is the key to disclosure. A number of industry insiders believe that investors pay close attention to the regulatory interview of ant executives, which is a major event after the meeting and should be disclosed.
“From the previous IPO experience, the exchange generally requires the lead underwriter to check and report whether it is a major event. If it is a major event, it needs to be disclosed, and the issuer is required to fully disclose the company’s senior executives and actual controllers who are supervised and interviewed by relevant ministries and commissions. The issuer and the sponsor institution are requested to check and make supplementary disclosure on recent media hot issues Show the risk. The lawyer of the sponsor institution shall be required to check the relevant issues, and express clear opinions on whether the above-mentioned issues constitute substantial obstacles to the IPO. ” One investment banker said.
In view of the fact that only being supervised and interviewed, market people are relatively optimistic. A well-known investment bank personage once told reporters that the regulatory interview is not a punishment and should not have an impact on the listing.
But behind the interview, what investors are curious about is what is the content of the interview and what is the impact of regulatory policy orientation on the future fate of ant group?
Adjust business to meet listing conditions?
The content of the interview pointed to another reason in the announcement of Shanghai stock exchange that “the regulatory environment of financial technology has changed”, which has a more profound impact on ants.
On November 2, according to the official website of the CIRC, the CIRC, together with the people’s Bank of China and other departments, drafted the “Interim Measures for the management of online small loan business (Draft)”, which is now open to the public for comments. The draft proposes that in a single joint loan, the contribution ratio of small loan companies operating network small loan business shall not be less than 30%.
This is undoubtedly a powerful medicine for many Internet giants, including ants, who hold small online loan licenses.
According to the prospectus, ant group currently has three major businesses. Among the total revenue of 72.5 billion yuan in the first half of 2020, the first business is digital financial technology platform, with corresponding revenue of 46 billion yuan, accounting for 63% of the total revenue; the second largest business is digital payment and business services, with corresponding revenue of 26 billion yuan, accounting for 36% of the total revenue; the third business is innovation business and others Revenue should be 500 million yuan, accounting for 1% of the total revenue, basically negligible.
Digital financial technology platform business, specifically refers to ant’s assistance to financial institutions (such as commercial banks, public funds, insurance companies) to provide micro loans, financial management and insurance services to users on the platform. The vast majority of its income comes from the technical service fees collected from cooperative financial institutions.
Moreover, it depends on the reciprocal cooperation with financial institutions. During the reporting period, the income share of ant digital financial technology platform in the company increased continuously. In 2019 and from January to June of 2020, the proportion of digital financial technology platform revenue in the total revenue of the company will reach 56.20% and 63.39% respectively, which is expected to become an important driving factor for the company’s future growth.
As of 2020, the total balance of micro credit services provided by ant companies (about 2.0 trillion yuan) was realized by small credit companies (about 2.0 trillion yuan) by the date of 2020, accounting for about 1.0 trillion yuan of the total loans provided by the small credit companies or by the ant securities platform.
According to the new rules, in a single joint loan, the contribution proportion of network small loan companies should not be less than 30%, which has a significant impact on ant group’s joint loan business. According to market participants, the “measures for small online loans” defines the business scope, leverage ratio, and scale of joint loans of small online loan companies, which will directly affect ant group’s “Huabei” and “jiebei”, and then affect the “micro loan business” that makes money at present. Financing leverage ratio, joint loan ratio requirements and so on will lead to the capital of ant two small loan companies.
According to the prospectus of ant group, customers initiate loan demand through the company’s technology platform, and bank partners immediately make independent credit decisions and loan issuance. The partners of financial institutions pay technical service fees to the company based on the credit scale promoted by the company platform. In this process, the company’s business model is open cooperation, rather than using its own balance sheet to carry out business or provide guarantee. The company helps financial institutions to provide credit services for small and micro operators, farmers and consumers through technology, and the financial institutions independently make credit decisions and take risks.
At present, ant has become China’s largest online consumer credit and credit platform for small and micro operators. As of June 30, 2020, the balance of consumer credit promoted by the company’s platform was 1732 billion yuan, and that of small and micro operators was 421.7 billion yuan.
In this regard, some media reports said that ant group needs to readjust the business content of the listing plate and revaluation after the suspension.
From the perspective of many market participants, there are two ways left for ants: one is to get rid of the consumer loan business and then go public; the other is to value the supplementary capital according to the financial sector.
“In the face of huge changes in the regulatory environment and regulatory system, the market is facing a new understanding and evaluation of ant’s business logic, business model and growth potential, and the original valuation basis has no longer existed. In order to protect the interests of public investors, ant needs to adjust its listing business map. In essence, Alipay has 1 billion users and has become an important financial infrastructure in a sense. It is also expected that the regulatory framework for the incorporation of ants into financial institutions of systemic importance can be expected. Shi Donghui, a professor of finance at Fudan University’s oceanwide international finance school, said in an interview.
How does ant group deal with regulatory risk?
For the future listing of ants, the market is still difficult to come to a conclusion, but it might as well take a look at how ant group views risk in the prospectus.
Ant group said that the relevant laws, regulations and rules on financial supervision are highly complex and constantly changing, such as the decision of the Supreme People’s Court on Amending the provisions on Several Issues concerning the application of law in the trial of private lending cases (hereinafter referred to as the “provisions on private lending”), the Interim Measures for the administration of Internet loans of commercial banks, and the implementation fund The decision on access management of financial holding companies and the Trial Measures for supervision and management of financial holding companies may increase the difficulty of company compliance and increase the cost of compliance. In the past, the company has adjusted its business and cooperation model to comply with the changing regulatory environment in payment, online lending, financial management and insurance. In addition, Chinese and overseas regulators may continue to promulgate new laws, regulations and rules, and strengthen the implementation of existing laws, regulations and rules. The company’s services cover many aspects of the financial services industry, and business innovation. In the face of new regulations and regulatory environment, the company can not guarantee that it can always make timely adjustments to its business to meet the compliance requirements. As a result, the company may increase costs and its expected business growth may also be affected.
In addition to cooperating with financial institutions to provide financial products and services, the company also provides consumer credit and small and micro business operator credit, financial products, insurance products and factoring services through its small loan subsidiary, Tianhong fund, Cathay Pacific Insurance, commercial financial factoring and online commercial banks, a joint-stock company. These licensed financial services subsidiaries and participating companies are also subject to the same or similar regulatory requirements as the cooperative financial institutions, such as capital adequacy ratio, leverage ratio or solvency adequacy ratio. Any change in the financial regulatory system or regulatory requirements may limit the conduct of its business or increase the cost of compliance. In addition, these licensed companies and joint-stock companies are subject to regular and temporary regulatory inspections, and regulatory authorities may make rectification requests on compliance matters from time to time.
From its expression, ant group is well aware of such policy risks, but it does not give specific coping strategies. Under such a big change, investors have to hang a heart on ant group.