- Timothy McDonald
- BBC News, Singapur
It should have been the big week for Chinese tycoon hg Jack Ma and his business colossus, Grupo Hormiga.
Everything was ready for what would be the largest IPO in history, a new boost for Ma’s fortune, aimed at regaining the status of the richest man in China.
But things did not go as planned.
Investors prepared last Thursday to buy Grupo Hormiga securities on the Hong Kong and Shanghai stock exchanges for US $ 34.4 billion.
The broadcast was unexpectedly suspended after a last minute questioning by Chinese financial regulators.
Specialized economic media had estimated Ma’s shares at around US $ 17,000 million, which would have raised his assets to US $ 80,000 million.
“Not only had this deal been approved for take-off, but the wheels literally took off,” says Drew Bernstein, a director at Marcum Bernstein & Pinchuk, a company that advises Chinese companies.
Some analysts see this unexpected move as an attempt by Beijing to humble a company that has become too powerful and whose leader has a tendency to make uncomfortable statements.
The question is how Jack Ma, a man of humble origins who became a symbol of China’s potential and its technological progress, became a threat.
How Jack Ma got rich
Ma drew the ire of his country’s authorities at a technology conference last month in Shanghai, where he compared the Chinese state-controlled banking sector to “pawn shops” and lamented its lack of innovative vocation.
In some ways, it was a return to his origins for Ma, believes Duncan Clark, author of “Alibaba, the house that Jack Ma built.”
“This isn’t the first time he’s gotten into trouble. He just doesn’t like to follow a particular script or narrative. And he likes to provoke, like any great storyteller,” says Clark.
Like many other great storytellers, Ma is used to talking about her past. He tells his life as a tale of perseverance, but never omits his failures and difficulties.
Ma grew up in humble surroundings in Hangzhou, struggled in school, and twice failed college entrance exams. When he started looking for work, he was turned away from dozens of jobs. He applied to Harvard 10 times, all without success.
Perhaps his most famous anecdote is that of when he applied for a job at the fast food chain, KFC, only to discover that he was the only one of the 24 interviewees who was not hired.
At the third, he managed to get past the university entrance and went to a teacher’s school. There he spent some years as an English teacher. And it was on a trip as a translator to the United States that he discovered the internet.
He started a company that failed, and after that first failed attempt to do business, he founded Alibaba with $ 60,000 that he raised from a few friends.
Alibaba was a huge success and became the dominator of Chinese digital commerce. He raised $ 21.8 billion in his initial share offering in 2014. Last year, Ma formally withdrew from Alibaba.
Now, of course, he is not always thought of as a David fighting a Goliath.
“He’s built a life from being underestimated. That’s getting harder. The richer and more powerful you get, the expectations grow,” says Clark.
The great hopes of Grupo Hormiga
Grupo Hormiga’s stock market debut had aroused great anticipation.
Ant’s most popular service, Alipay, started out as Alibaba’s payment platform. It held buyers’ money in trust until they received the product they purchased online.
It was essential in the growth of Alibaba because more and more people began to feel safe shopping online. Now, it is more used in China than credit cards.
The company was divided in 2011 and later its two branches rebutted as Hormiga Finanzas and Grupo Hormiga. At the time, Alibaba hinted that the segregation was due to regulatory changes in China.
Ma got a large stake in one of the resulting companies, which expanded into other services, such as health insurance, wealth management or consumer loans.
Many analysts believe that it was not a revenge of the authorities that sank the premiere of Hormiga. Clark says Ma’s comments may have been politically incorrect, but they were not the only cause for concern from regulators.
“My intuition is that it was the interest in the offer and the way that people were raising money, going into debt to invest it,” says Clark.
Reuters agency has reported that banks were lending large amounts to small investors.
Grupo Hormiga’s financial division is more of an intermediary than a bank. It grants loans to small businesses and individuals, but passes them on to the banks, which are actually the ones that sign them.
Ant earns from the commissions it charges banks, but without the requirement to maintain reserves and, consequently, with less risk to your own balance sheet.
Prudent Chinese regulators have long worried about the growing number of online lenders in China and how their action could affect the entire financial system.
According to a legal draft published by the People’s Bank of China published on Monday, firms that grant digital loans must contribute at least 30% of any credit from their own funds.
When the Public Investment Offering was suspended, the Hong Kong Stock Exchange said it was because Grupo Hormiga “may not meet standards for registration and transparency requirements” and suggested that “recent changes” in the regulatory environment of digital finance could have been an obstacle.
“This was a great deal. But I don’t think China is going to go for just any deal. They are not going to put their financial system at risk for a deal, says Drew Bernstein.
What awaits now
It seems almost inconceivable that Ant is not going to present a new prospectus and try again to go out on the stock market.
“The company is going to have to restructure in some way. Maybe commit more money to the loan division or apply for more licenses. Then they can get back on the market,” says Bernstein.
Some analysts believe there will be pressure for a complete separation of the loan division from the rest of the business.
By some estimates, Ma’s personal financial losses from the failure of the operation run into the billions of dollars. But determination is one of the hallmarks of his biography.
A man who tried to get into Harvard 10 times doesn’t seem like the type of person to be deterred by a single refusal from regulators.
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Digsmak is a news publisher with over 12 years of reporting experiance; and have published in many industry leading publications and news sites.