By Strauss Cooperstein
Now valued at upwards of $280 billion, Ant Group Co., a Fintech subsidiary of Alibaba, has been increasingly praised as the world’s most valuable startup. While awaiting some regulatory approvals, Ant’s Alipay payment platform facilitates five new mutual funds managed by some of China’s largest investment firms to raise early-bird funds from individual investors, all of which are Chinese citizens. However, investor funds will be locked for 18 months to help insulate from short-term market volatility. The 5 funds can invest up to 10% of its assets in Ant per Chinese mutual fund regulations and the rest will be invested in internet or technology stocks and bonds. More than 10 million individual investors have already subscribed to the 5 funds at around $9 billion total just after China’s Mid-Autumn festival early this month, yet only $6 billion of these funds can collectively go into Ant’s IPO.
These impressive numbers are a testament to China’s capital markets shaped by individual rather than institutional investors. While discouraged by Chinese regulators, the deal is planned to take place on Shanghai Stock Exchange’s Science and Technology Innovation Board (STAR), which requires investors to maintain a certain level of funds in their brokerage accounts and at least two years of stock trading experience. Thus, mutual funds facilitated by Alipay and other online wealth management products are among the most promising investment vehicles for individual investors to get involved in these increasingly large IPOs.
Clearly, exiting on the STAR or Hong Kong stock exchange remains a strong option for many Chinese firms that have close competitors and prefer to avoid the rigorous mainland capital-control restrictions. For example, the saturated ride-sharing space with Uber and Softbank-backed Didi Chuxing took a backseat to underdog Dida Chuxing, a JD.com and Nio- backed firm making more aggressive movements toward the first ridesharing IPO in Hong Kong. Bloomberg data shows that China and Hong Kong exchanges still capture 86% of the $94.7 billion that Chinese companies raised globally through IPOs this year.
For other Chinese firms that are considering a market debut, the US continues to be an attractive option for overseas expansion, despite sour geopolitical relations and questionable audit access. While Trump threatened to delist Chinese companies that may have Beijing accounting practices, Chinese firms have not been deterred in recent quarters. In fact, Chinese firms raised $9.1 billion through US IPOs this year so far, and with newcomer fintech subsidiaries and consumer goods retailer firms preparing to file, 2020 is projected to have the highest annual total since 2014. A reason for this push abroad is that the US offers a more time efficient listening process and deeper liquidity and fundraising options for firms that may not prove immediately profitable. Private Chinese firms have been pushing to raise capital under new creative circumstances given tightening regulatory concerns at home and individual investors are responding positively.