Market Thinking

making sense of the narrative

Cash lies dorm-ANT

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There are many Bankers having a rant this morning about the reluctant debutant that is ANT financial. As the world’s largest IPO, it was highly significant and meant to provide a stimulant of hundreds of millions in fees for the Wall Street bankers before year end. It was more than an irritant for any expectant participant therefore to see this issue pulled at the very last moment. “They can’t do this! We shan’t get our bonuses!” the bankers and brokers declared in an instant, while inevitably going for the default option of calling their lawyers; rant like an infant, then turn litigant. Meanwhile, there’s many an applicant wondering what to do with their cash now that their elegant, nay brilliant, plan to stag the issue now looks redundant. Or at least lies dormant.

Some pointed out that a giant IPO concomitant with the US Election was risky, but that hardly explains pulling it at the last instant. Perhaps more relevant, one informant was adamant that it was Jack Ma being non compliant with the unspoken rule that he is a servant not a master and is a dependant on the goodwill of the Communist Party machine. Criticising the traditional banking sector – as he appeared to do last week – was seen by the claimant as being overly defiant. As such, it is suggested, he has been ‘put back in his place’. The elephant in the room is that it is The Party, not Jack Ma that is dominant and is the ultimate determinant of whether this goes ahead. International investors should not be ignorant to the fact that the role of the Party is a constant.

More than this, we suspect there are other issues at play. First we should recognise that ANT represents the official arm of the shadow banking sector and that understandably the authorities want to make sure it does not destabilise the financial sector as a whole.The AliBaba algorithms that monitor cash flow and sales are undoubtedly extremely helpful in assessing credit risk for lending to SMEs, but that does not get around the need for stable capital to back the bank lending itself. Potentially flighty international equity capital might not be what is appropriate. Moreover, the expansion of the international payments system that underpins ANT, the old AliPay system, remains a source of concern for the officials at SAFE, the foreign exchange regulator.

Secondly, the huge over-subscription and 50% grey market premium will likely have made the authorities pause for thought. Does this not suggest perhaps that the offering price was too low – the bankers being sure of their fees and the connected insiders benefiting from a huge first day ‘pop’? Memories of late 1990s Wall Street and the powerful hedge fund/Investment Bank nexus are still strong. Perhaps more importantly, seeing how popular the issue was with locals in Hong Kong and Shanghai, China must be wondering if it really needs to be giving so much away in fees to American Investment Banks? Especially under current circumstances? And if there are to be ‘connected insiders’ benefiting from strong allocation, shouldn’t they be Beijing’s preferred insiders? This of course raises another interesting line of who, apart from sovereign wealth funds like GIC and of course AliBaba itself was in line for the ‘free money’? The last minute pre-IPO round would make interesting reading for sure.

None of this is an existential threat to ANT as a company, its just that the ground rules need to be set before small investors’ money is obtained. Also, the Party works on five year plans, not bonus driven bankers’ timetables, which does rather raise the question of why they planned to IPO two days after a US Election in the first place. We have no doubt that the issue will happen, albeit not this year and probably at a keener price. Certainly, all of this will be a very ‘useful’ talking point with the next US administration -whenever we find out what that is.

This is not to be flippant, but AliBaba is a merchant giant and surely as a FinTech company ANT can raise capital using its own platform rather than rely on the status quo extant? Especially when markets are rampant and demand for tech is so buoyant? An IPO is really a distribution story and, given the size of the savings base in China, why does it need help from JP Morgan, CitiGroup and Morgan Stanley? We grant that it may be too early to fully supplant the Wall Street banks, but if you want to build a full spectrum financial system then any consultant can tell you in an instant that FinTech is in the ascendant, while old school Investment banks look increasingly irrelevant, if not totally redundant.

(I make that 48)

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