Why the world’s most valuable unicorn is shunning a U.S. IPO

July 21, 2020, 10:30 AM UTC

China’s Ant Group, an Alibaba affiliate, is planning a dual listing in Hong Kong and Shanghai in what could be the biggest initial public offering this year—and a signal that the world’s tech giants are starting to choose sides as the U.S.-China feud bifurcates the global market.

Ant, a financial technology firm that runs China’s dominant digital payment platform, was last valued in 2018 at $150 billion; stock analysts estimate a current value of $200 billion, making it arguably the world’s most valuable unicorn. Ant will debut simultaneously on Shanghai’s tech-focused Star Market and on the Hong Kong Stock Exchange, where Alibaba is listed.

Alibaba founder Jack Ma started Ant in 2014 and has a controlling 50% stake in the fintech firm. The companies closed a deal last year that ended their profit-sharing arrangement and gave Alibaba a 33% equity interest in Ant.

Between regulatory uncertainties in the U.S. and proximity to its main markets, listing in Hong Kong over New York is “the easier way for Ant,” said Bruce Pang, head of macro and strategy research for China Renaissance Securities. “In the past two years, the odds for [Ant] listing in New York have just been getting lower,” Pang said. “It has to be thinking about all these uncertainties and risk factors.”

Ant’s decision to spurn U.S. bourses in favor of two exchanges near its headquarters in Hangzhou, China, some 100 miles southwest of Shanghai, speaks to the chasm in today’s technology space and the knock-on effects of the unrelenting U.S.-China tension over data, human rights, and trade.

Low odds

Regulatory scrutiny of Chinese companies in the U.S., and the home field advantages of China—policy support, convenience, and access to the domestic market, Ant’s largest—are all possible reasons the firm settled on Shanghai and Hong Kong to go public, Pang said. An Ant representative didn’t immediately respond to a request for comment.

Ant’s dual IPO comes as more Chinese companies list closer to home. Some Chinese companies already listed in the U.S. have pursued secondary listings in Hong Kong or Shanghai as a sort of backup plan should the U.S. become more hostile; others have delisted from U.S. exchanges altogether. Such moves seem to be in response to regulatory changes at home and an increasingly inhospitable U.S. climate.

The U.S. Senate in May passed a bill to delist companies that don’t comply with audits, and Nasdaq said it would tighten its regulations for companies that want to list. Neither change targets Chinese companies specifically, but one of the sponsors of the bill said it was aimed at China, and Nasdaq’s announcement followed allegations of financial fraud in two Nasdaq-listed Chinese companies. The U.S.-listed Chinese firms that could be affected by the Senate bill have a combined market capitalization of around $1 trillion, roughly 3% of the U.S.’s total equity market cap.

Ant is the highest-profile and most valuable company yet to shun New York in favor of exchanges closer to home. It operates the online payment service Alipay, which has 1.2 billion users globally. Alipay is China’s most popular mobile payment platform with a 55.1% market share.

Ant’s choice of IPO venues means U.S. investors will not be able to buy shares of the firm. That isn’t the case with Alibaba, which is listed in both New York and Hong Kong. Pang said he has spoken to U.S. investors who are disappointed that they won’t be able to buy shares in Ant because “they’ll lose the opportunity to invest in the growth of China’s new economy sectors.”

A changing climate

Even before its IPO announcement, Ant has had to rethink U.S. expansion plans as trade war tensions spilled over into dealmaking. In January 2018, the U.S. blocked Ant’s attempt to buy U.S. money transfer company MoneyGram in a $1.2 billion deal, citing national security concerns.

Jack Ma said in January 2017 that he would create 1 million jobs for U.S. workers through Alibaba’s expansion into the U.S. By 2018 he had rolled back the pledge, saying that because of trade tensions between the U.S. and China, “there is no way to complete the promise.”

What’s more, U.S. government skepticism of Chinese tech companies has surged this year. Some U.S. lawmakers are pushing to ban the short video app TikTok because it is owned by Chinese tech firm ByteDance, another highly valuable unicorn.

The domestic regulatory environment may have also played a part in Ant’s choice of listing location. Ant is domiciled in China and requires approval from Chinese regulators to list in markets outside China. A senior Ant executive told the Financial Times that the company waited to “secure the full support of Beijing” before it announced the IPO.

Ant said the capital raised from the dual offerings will be used to develop its presence in global markets, expand tech investment, and digitize China’s service industry. That global market expansion will take place largely in Asia, where Ant has established partnerships with nine digital payment startups in India, the Philippines, and elsewhere.

Ant changed its name last month from Ant Financial Services Group to Ant Group, in an effort to shift public perception of Ant as a financial firm to Ant as a technology company.

Ant’s IPO decision will benefit Hong Kong’s exchange at a moment when political uncertainty has thrown the city’s status as a financial hub into question. In fact, the city has experienced a sort of windfall as Chinese firms look for U.S. alternatives.

U.S.-listed Alibaba completed its secondary listing in Hong Kong in November. The e-commerce giant’s Hong Kong listing wasn’t an option until 2018, when Hong Kong’s exchange tweaked its regulations to allow companies with weighted voting rights to list. The change was aimed at making Hong Kong’s board more attractive to big tech companies like Alibaba and Ant.