The initial public offering (IPO) of Ant Group in Hong Kong and Shanghai – which had been predicted to become the world’s biggest – has been postponed on orders of the China Securities Regulatory Commission (CSRC) and other regulatory authorities after subscriptions were completed and less than 48 hours before trading was expected to begin. The move signals tightening regulation on China’s booming fintech business. Ant Group is being required to clarify its business model, financial innovations, measures to protect users’ private data, and other issues. It is also possible that it would need to restructure its business for the IPO to go ahead. Regulatory tolerance has led to an outpouring of innovations in fintech, but regulators are now taking a tougher stance. In a sign of China’s fintech prowess, the nation’s mobile payment market totaled USD414 billion in 2018, while the marketplace for mobile payments was only worth USD64 billion in the U.S., according to a report by China International Capital Corp.

Analysts told the Global Times that there may actually be too much innovation, which could lead to a worst-case scenario in which consumers take on too much debt, especially amid any economic downturns, with a surge in bad loans. In a commentary, Guo Wuping, Director of the Consumer Rights Protection Department at the China Banking and Insurance Regulatory Commission (CBIRC), wrote that compared with licensed financial institutions, fintech firms rely more on behavioral data such as shopping, transactions and logistics, and they are more dependent on borrowers’ consumption and loan payments, so it is hard for them to evaluate creditworthiness. Some low-income people and young consumers might get mired in debt traps, he added.

Investors who felt “fortunate” to get shares in Ant Group’s record-smashing IPO are now worried about the fin-tech company’s dual listing, as the surprise suspension announcement prompted retail investors to seek swift refunds of their bids. Some fear that tighter scrutiny of the Chinese fin-tech giant might affect the sector’s growth prospects.
The highly anticipated dual listing proved to be a huge magnet for retail investors in both Hong Kong and Shanghai. In Hong Kong, 1.55 million individual investors, roughly one-fifth of the city’s population, applied for Ant Group’s shares with HKD1.3 trillion, or an oversubscription of 389 times the shares on offer. The retail portion of the listing in Hong Kong was underpinned by HKD500 billion in total margin financing by the city’s banks and brokerages. In Shanghai’s STAR Market, Ant Group’s offering was oversubscribed 870 times, drawing a record CNY19.05 trillion of bids from Chinese mainland retail investors.

“The past few days were the darkest and most difficult in the history of Ant Group and Alibaba,” said Ant Group Executive Chairman Eric Jing. It is estimated that Ant Group’s listing will be delayed for about half a year. The odds are small that Ant’s IPO will be put off indefinitely, as China’s supervisory toughening aims to protect investors and it is not very likely that the regulators intend to kill the listing, Wu Jinduo, head of fixed income at the research institute of Great Wall Securities, told the Global Times.

The suspension aims to better safeguard capital market stability and protect investors’ interests, Chinese Foreign Ministry spokesperson Wang Wenbin told reporters. Tougher rules recently announced by the regulators don’t target any specific online financial platforms, Wu added, noting that the nation’s financial system has over the years been striving to contain risks, with efforts to clamp down on shadow banking in 2013 and combat risks stemming from the problematic peer-to-peer (P2P) online lending schemes. The regulators have plans to strengthen oversight of Ant Group, particularly on the firms’ cash cows – its credit-scoring platforms that channel loans from banks and other institutions to customers across the country. Draft rules for online micro-lending unveiled by the People’s Bank of China (PBOC) and the CBIRC require platform operators to provide a minimum of 30% of the funding for loans. This would be a challenge for Ant Group to remain compliant, as its stock prospectus revealed that about 2% of its loans are on its own balance sheet, with the rest of the credit balance financed by partner financial institutions or securitized, the Global Times reports.

The IPO suspension could have negative effects on the whole Alibaba ecosystem and boost competitors JD.com and Pinduoduo, which has become a particularly worrying rival to Alibaba. The social e-commerce platform has been a rising star among U.S.-listed Chinese online retailers. In its fiscal second quarter ended on September 30, Alibaba’s revenue jumped 30% to CNY155 billion, slightly above market expectation. The company had 881 million monthly active users in the second quarter. Alibaba holds a 33% stake in Ant.