China's move to halt Ant IPO could slash fintech giant's value by $140 bn

Ant faces more scrutiny, tougher China regulatory requirements

Ant Group
In a dramatic turn of events, China put the brakes last week on Ant’s $35 billion share sale just days before the fintech firm was due to go public in Shanghai and Hong Kong

China’s move to halt Ant Group’s massive stock debut could reduce the fintech giant’s value by as much as $140 billion, according to analysts’ revised estimates.

New regulations that 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, according to estimates from Morningstar Inc. and other firms. The regulatory details are preliminary and could be subject to change.

If Ant’s $280 billion pre-IPO valuation is halved, it would essentially mean the company is worth less than what it was two years ago when it raised money from some of the world’s largest funds including Warburg Pincus , Silver Lake Management LLC and Temasek Holdings.

The reduced valuation also means potentially lower fees for investment banks like China International Capital Corp that were counting on a windfall from Ant’s record-setting IPO. And it gives billionaire Jack Ma’s firm less heft to carry out acquisitions as it looks to expand beyond its Chinese base and take the fight domestically to Tencent Holdings.

Iris Tan, an analyst at Morningstar, said that Ant could face a 25 per cent-50 per cent downside in valuation, if its pre-IPO price-to-book ratio drops to around the level of top global banks. That means its valuation could be slashed by about $140 billion. Currently Ant’s stock price is valued at 4.4 times of its book value, versus 2 times at those banks, she added.

Sanjay Jain, Singapore-based head of financials at Aletheia Capital, estimates 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. The new price would put the fintech giant more in line with valuations of some of the better quality banks. Citigroup Inc. is trading at about eight times forward 12-month earnings, while DBS Group Holdings of Singapore is trading at about 12.6 times. China Merchants Bank Co, among the country’s biggest retail lenders, trades at about 10 times.

A representative for Ant declined to comment.