Last week, business magnate Jack Ma looked set to become China’s richest man with the launch of his new tech venture, Ant Group. Already an icon in the industry as the man behind the world’s largest e-commerce platform, Alibaba (HKG:9988), Ma was set to sell shares in his new company worth about $34.4bn (£26.5bn) on Thursday, in what would have been the largest stock market debut on record. That was, until, Chinese authorities intervened citing “major issues” with the project, and suspended the listing with immediate effect.
The decision to halt the launch sent shockwaves through the rest of Ma’s portfolio, sending Alibaba’s share price down 8.1% in New York on Tuesday after the news broke, and a further 9.6% in Hong Kong on Wednesday. Both drops wiped a colossal $76bn off the value of the company, and Ant Group’s proposed shares would have boosted Ma’s own net worth to over $80bn.
“This deal was not only cleared for take-off, the wheels were literally off the ground,” Drew Bernstein, co-managing partner at Marcum Bernstein & Pinchuk, told BBC News last week.
On Monday morning, Bloomberg reported that China’s decision to suspend the launch could “reduce the fintech giant’s value by as much as $140 billion”, citing analysis by Morningstar Inc. (NASDAQ:MORN). New, tighter regulations imposed by Chinese authorities could “force Ant to raise more capital to back lending and seek national licenses to operate across the country may reduce the firm’s valuation by about half”.
Even though Bloomberg cautions that the estimation is merely that – an estimate – if Ant’s value does halve from its pre-IPO $280bn, it would drive the company down to even less than it was worth two years ago.
Iris Tan, an analyst at Morningstar, told Bloomberg that Ant could face a 25%-50% slip in valuation, if its pre-IPO price-to-book ratio drops to “around the level of top global banks”. In reality, that would mean that Ant could see its valuation slashed by some $140 billion.
Currently, Ant’s stock price is valued at “4.4 times of its book value”, versus just 2 times at comparable global banks, Tan added.
Sanjay Jain, Singapore-based head of financials at advisory firm Aletheia Capital, estimated that Ant’s price-to-earnings ratio could drop to “about 10 times its lending profits, half of the previous target it had assigned to the company”.
That new price would see Ant sink from its initial lofty estimates to be more in line with some of the world’s largest banks, with Citigroup Inc. (NYSE: C) reportedly trading at “about eight times forward 12-month earnings, while DBS Group Holdings Ltd. (SGX: D05) of Singapore is trading at about 12.6 times”.
One of the most apt comparisons could be China Merchants Bank Co. (SHA: 600036), which currently trades at about 10 times its annual earnings.
Mr Bernstein was keen to emphasize that Ma will mostly likely recalibrate his business and attempt a second market debut in the coming months, even after speculation that the temporary suspension cost his own wallet billions.
“The company’s going to have to restructure somewhat. Maybe commit some more capital to the loan division, apply for more licences. Then they’ll be able to come back to market”.