Alipay operator Ant Group's pending and likely record-setting initial public offering is already moving markets, forcing Hong Kong's central bank to sell off the city's currency to maintain its exchange rate.
A record amount of liquidity has flowed into Hong Kong as a result of the prospective Ant Group IPO. The investment bankers running the deal are poised to close the books on the institutional portion of the IPO early, as of the end of Asian trade on Wednesday instead of Thursday as planned, given that it is already many times oversubscribed.
Retail investors need to put up the cash they are attempting to invest in Ant by Friday. The money will then be locked up until Nov. 4, the day before the Ant IPO, when investors will know whether they got the stock.
The cash flowing into bank accounts in Hong Kong, and therefore the Hong Kong dollar, caused the Hong Kong Monetary Authority (HKMA) to sell US$3.3 billion in the Hong Kong currency into the market during Tuesday trading, the HKMA said.
The Hong Kong dollar is pegged to the U.S. dollar, within a range of HK$7.75 to HK$7.85 to the greenback. The city's central bankers must manage foreign and domestic currency exposure to maintain that rate. All the money in the Hong Kong system forced the Hong Kong dollar over the strong end of that range.
The Ant Group offering is slated for Nov. 5 and aims to raise US$34.4 billion. Ant, affiliated with dominant Chinese e-commerce operator Alibaba Group Holding (BABA) , will sell equal US$17.2 billion blocks of stock in Hong Kong and on Shanghai's Nasdaq-like STAR Market, the first simultaneous listing on those two markets.
The Ant offering would value the company at US$312 billion. That would be larger than the largest U.S. bank -- J.P. Morgan Chase (JPM) has a market capitalization of US$302.7 billion -- and approaching the size of the entire economy of Singapore (US$337 billion) or Hong Kong (US$341 billion).
As of Oct. 29 there will be HK$443.3 billion (US$56.5 billion) parked with the Hong Kong central bank in the clearing and reserve accounts of commercial banks. That is a record, according to data from Refinitiv.
Ant will list in Hong Kong under the ticker HK:6688 and in Shanghai under SH:688688. The number "6" sounds similar to the word for "infinity" in Chinese, while "8" sounds like the word for "wealth," so taken together the tickers connote eternal financial success. The shares will sell for HK$80 in Hong Kong and C¥68.80 in Shanghai.
Much of the potential for that kind of success depends on the whims of the Chinese Communist Party. Although Ant Group has painted itself as a financial powerhouse, it changed its name from "Ant Financial" and has started stressing that it is the shop window selling financial products from banks and fund houses, rather than managing those products, alarmed that the Chinese regulators were about to crash down on it.
Alipay began life in 2004 as an escrow service for buyers and sellers to transact on Taobao, Alibaba's e-commerce platform. Alibaba spun out what's now called Ant in 2011.
Alipay and its rival WeChat Pay from Tencent Holdings TCEHY are now ubiquitous in China, allowing shoppers with mobile phone accounts to pay for everything digitally without the need for a credit card. The purchaser scans a QR code and the money is deducted from their digital wallet.
This technology has given them huge financial clout. Ant has expanded to offer insurance, wealth management products and the full suite of financial services without technically being a bank or holding that license.
If it tops US$30 billion, the Ant offer would outdo the previous world record for an IPO set last December in Riyadh with the US$29.4 billion raised in the listing of Middle Eastern oil giant Saudi Aramco SSE:2222. Prior to that IPO, Ant sister company Alibaba held the title of history's largest IPO following its US$25 billion float on the New York Stock Exchange in 2014.
But the Ant offering is occurring entirely outside the United States, as did the Aramco stock sale. Reports say ByteDance, the parent of the world's hottest app right now, TikTok, also is looking to list the business operating the Chinese version of the app, Douyin, in Hong Kong, another IPO that would raise billions of dollars outside of Wall Street.
Chinese companies have responded to political and regulatory pressure in the United States by preparing an escape hatch. For stocks already listed in New York, that is taking the form of a secondary listing in Asia, normally Hong Kong, that could pave the way for eventual delisting in New York.
Alibaba started the trend last November with a secondary listing in Hong Kong valued at US$12.9 billion. This June, the e-commerce operator JD.com (JD) issued US$4.4 billion in stock in Hong Kong, the same month that the video game maker NetEase (NTES) raised US$3.1 billion in Hong Kong stock. Yum China Holdings (YUMC) , which operates Pizza Hut, Taco Bell and KFC in China, sold US$2.2 billion in shares in Hong Kong in September.
The process amounts to a significant shift of investor interest and investor capital toward Asia and away from U.S. markets. More such deals are in the works, and it appears Asia-focused businesses are more than happy to forsake a U.S. listing to sell their shares nearer to home, where investors may also value the businesses at a higher premium.
The online travel agency Ctrip (TCOM) and the search engine Baidu (BIDU) are reportedly considering Hong Kong secondaries, while Sina (SINA) , which runs the Twitter (TWTR) equivalent Weibo (WB) , is being taken private and delisting from New York, a deal expected to close in the first quarter of 2021.