Ant Group IPO brings diversification and inclusion to China’s A shares
Published: Oct 27, 2020 04:32 PM

Ant Group Photo:VCG

Chinese fintech giant Ant Group will raise $34.5 billion in dual IPOs in Hong Kong and Shanghai after setting the prices for its shares on Monday, making it the biggest IPO in history.

The listing of Ant Group (which will make it the first IPO of a world-leading technology company into the top 10 companies in China's A share market in three decades) will encourage the diversification of China's stock structure, and divert more institutional investments into China's new economy, experts say. 

The company's Shanghai-listed shares are priced at 68.8 yuan ($10.26) per share. The price will push the fintech's valuation to soar to $313 billion, larger than any traditional financial institutions such as Goldman Sachs, or China's ICBC.

The listing of a top tier fintech company in China suggests that China's A share market is becoming more mature and inclusive, according to Mei Xinyu, a research fellow at the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce. 

According to public information, Ant Group is the only company to be listed with more than $15 billion of business revenue, as well as over 20 percent operating profit margin and more than 40 percent revenue growth. 

"Internet companies of this size normally would choose to get listed in the US or Hong Kong stock market a few years back," Mei added. 

"Compared to more mature markets like those in Hong Kong and the US, top companies in China's A share market are significantly more homogenous, making it less diverse and attractive for top investors," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Tuesday. 

"All of the top 10 companies listed on China's A share market used to be in the traditional sectors, including liquor, banking and energy - whereas in Hong Kong, 4 out of 10 are in emerging sectors," Dong said.

The listing of Ant Group marks the transformation of China's A share structure, and will divert more resources to new economy sectors, making it more competitive with the world's leading stock markets such as the US market," Dong added. 

So far, the listing has attracted multiple high-profile institutional investors. On Sunday, Chen Wenhui, vice chairman of the National Council for Social Security Fund, confirmed that the fund is actively participating in Ant's IPO.

Other large institutional investors include China Investment Corporation, the Canadian Pension Plan,Government of Singapore Investment Corporation and Temasek.

The reasons behind the increasing appeal of China's stock market for top fintech companies is likely to be the capital market's deepening reforms in recent years, including the shift to a registration-based IPO mechanism to support new companies to go public in China, Dong said. 

It is note-worthy that Ant Group's decision to pursue dual IPOs in Hong Kong and Shanghai stock exchanges was made despite tensions between China and the US, which is reportedly considering adding the fintech company to the Trump administration's trade blacklist.

"For younger companies, which may have weighted voting rights and different company structures that do not conform to the traditional listing requirements, China's financial reforms are hugely encouraging," Dong said. "Chinese markets are also shifting to prioritize the company's revenue scale, making the market much more inclusive, and easier for young fintech firms to be listed."

"For Ant Group, the listing in Shanghai will also give it an edge during a time of uncertainty, as the US increases scrutiny of Chinese companies listed there and threatens them with potential delisting," according to Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences. 

Global Times