the largest IPO with a demand that exceeded 872 times supply

31/10/2020 05:00

Ahead of

With just a few hours to go until the largest IPO in history materializes and Asian markets are still recovering from what has been a heart-stopping weekend. The arrival of Ant Group, one of the legs of Jack Ma’s empire, to the trading floor of Shanghai and Hong Kong has exceeded all investors’ expectations, with an appetite never seen before.

It will be this day 5 when the Ant Group shares start trading on both exchanges simultaneously. The firm, a ‘fintech’ that has promised to reinvent ‘online’ banking is one of the parts of the Alibaba network and the strong attraction that it has caused among investors it is a vote of confidence to a sector that seems that it has not finished taking off in spite of pointing out ways for some years.

The Wall Street Journal

Ant’s IPO seems huge, but not so much in the context of other more expensive payment companies like Square and PayPal.

The company took almost 42 million titles to both markets with the idea of ​​attracting some 34,500 million dollars, thus exceeding the 29,400 million of the IPO of the Saudi Aramco. Only 11% of the shares will go on the market, which means that the company will be valued at around 320,000 million dollars.

If the supply and the capitalization are enormous, much more has been the market demand, that has exceeded the offer by 872 times. In total, and according to Bloomberg data, the requests from individual investors have exceeded three trillion dollars, more than enough to buy JP Morgan about 10 times. The barrage of requests was such that some brokers on the Hong Kong stock market could not keep up with the demand and their computer systems were down.

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Of course, small investors have not been the only ones who have gone all out to try to get hold of some Ant Group shares before trading starts. Heavy weights like Malaysian sovereign wealth fund or Canadian and Chinese pension funds They have also put in their name a participation in the capital, although in percentage they have not exceeded 0.4% in any of the cases.

Jack Ma, in one act.  (Reuters)Jack Ma, in one act.  (Reuters)
Jack Ma, in one act. (Reuters)

Jack Ma, creator of the network and second richest man in China –surpassed by Ma Huateng, founder of Tencent—He will keep 70% of the Ant Group shares and thus return to the front row after taking a step back on Alibaba. His farewell, just over a year ago, coincided with the birthday celebration and brought together 80,000 employees of the ‘holding’ in the Olympic state of Hangzhou.

In fact, Ma is honored to have led two of the three largest IPOs in history. To that of Ant Group we must add that of Alibaba, in September 2014, that reached 25,000 million dollars. Between the two is the Saudi state oil company Aramco, which began trading after raising 29.4 billion dollars from the markets. Behind the podium are the Japanese Softbank —21,100 million— and the Hong Kong AIA —20,400 million—, followed by Visa and General Motors, with 19,700 and 18,100 million respectively.

Under the magnifying glass of Beijing

It is well known that the government led by Xi Jinping exercises significant control over its national champions, a category in which the Ant Group undoubtedly falls. Until now, the path of ‘fintech’ has been more or less clear, but going to the market, with all that that implies, will make Beijing begin to control its movements in much more detail.

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Ant has already set his share price. Between Shanghai and New York, the operation will amount to more than 34,000 million dollars

In fact, Ma was until not long ago one of the free verses within the Chinese business community. It was almost a rule that the first swords of the big firms had close ties to the Communist Party, but Ma it took longer than normal is to signify and acknowledge that you carry the training card in your wallet.

In any case, Chinese regulators are going to have a lot of work to do. The structure of Ant Group rests mainly on four large business legs that also have many differences between them.

The most important is that of ‘online’ payments, which from June 2019 to the same month of the current year processed a total of 17 billion operations through Alipay. To this must be added the 173,000 million dollars that the company invests under its asset management vertical.

A man walks past an Alipay office.  (Reuters)A man walks past an Alipay office.  (Reuters)
A man walks past an Alipay office. (Reuters)

As if that weren’t enough, they also have a loan business. According to data from Goldman Sachs in 2021 $ 290 billion of consumer loans mature. The fourth leg that supports the benefits is that of insurance, which has around 107 million clients,

It will be this Thursday, at dawn in Spain, when Ant Group rings the bell in Shanghai and Hong Kong and starts trading. We will then know if investors’ appetite for a piece of a historic IPO was justified.

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