Investors such as BlackRock, GIC and Silver Lake have been allowed to hold illiquid stakes in Ant Group after they poured billions of dollars into the Chinese payments company ahead of its $ 37 billion IPO. scuttled.
People directly familiar with the matter said sovereign wealth funds, private equity and asset managers were left in limbo after investing $ 10.3 billion in Ant International, a subsidiary of the group owned by Jack Ma, as part of a highly selective and offshore pre-IPO fundraising in 2018.
But since the successful bid was halted at the last minute by Beijing in November, people said, these investors had not been given details on when the IPO might be relaunched, or at what. would resemble its valuation and activity after a restructuring which was demanded by Chinese regulators.
As part of a deal between Ant and his so-called Class C international investors, the money was placed in a offshore subsidiary who owns nothing. In addition to not having voting rights, there is little detail on the trade terms of the deal in Ant’s heavily drafted IPO prospectus.
Some of the investors are currently conducting a situation review that includes reviewing litigation, according to a person close to Ant. However, they said a number of investors had expressed hesitation over the prospect of litigation, while the exact reasons for Ant’s IPO withdrawal were unclear.
The result is that Ant International’s investors are “screwed,” said a lawyer with first-hand knowledge of the situation.
“There are agreements about what happens when things go wrong. But backup options are never this good. For international investors, the way the deal was structured was a real leap of faith, ”the lawyer said.
The creation of the offshore entity was not unusual in itself as a way to deal with Chinese foreign property laws before the IPO, said an Asia-based fund manager. What was unusual was the lack of clarity on the arrangement in the event of the IPO being canceled and the limited rights of shareholders. “It’s a future claim of ownership. . . but now they have to believe that Beijing is not crazy, ”said the fund manager.
China suspended Ant’s dual listing in Hong Kong and Shanghai, which was set to become the the largest share offering ever, a few days before its launch. Beijing also announced that it will develop regulatory changes for fintech companies.
The shutdown came shortly after Mr. Ma, founder and main shareholder of Ant, critical Chinese regulators and state-owned banks in a public speech. Ant dominates mobile payments in China with its Alipay app. Following the speech, Beijing summoned Mr. Ma for questioning, and he has not been seen in public since.
While institutional and retail investors who received allowances for the IPO have been reimbursed, those who supported Ant International’s offshore round face uncertainty.
Other attendees included US private equity players Carlyle and Warburg Pincus, investment bank Credit Suisse, asset manager T Rowe Price, and Asian state funds Temasek and Khazanah Nasional Berhad. One investor, who asked not to be identified due to the sensitivity of the matter, said he was reviewing his options.
The high demand for offshore fundraising could have meant Ant was “in a very powerful position to be able to dictate the business terms under which these investors got an allocation reduction,” said Dickson Ng, a partner. Equity Markets from Eversheds Sutherland Law Firm. .
“I doubt that they were able to negotiate or ask for certain rights by which, in the event that the company is not able to make an IPO within a certain period, they could obtain an additional financial return”, a- he added.
These investors are now “locked in,” which could put potential buyers of their holdings in Ant in a strong negotiating position, said Wong Kok Hoi, chief investment officer of APS Asset Management, who received an IPO allocation in. Ant scholarship prior to its cancellation.
“I do not think that IPO will take place this year or maybe even next year, ”he added, noting that China had yet to enact its new fintech regulations and that Ant had yet to complete its restructuring.
Ant and the investors cited in this story all declined to comment.