Ant Group’s Failed IPO Is A China Problem, Not A Fintech Problem
Just when you thought it was safe to be a billionaire.
Jack Ma, one of China’s richest men, and a philanthropist that pals around with the likes of Bill Gates and Warren Buffet, kind of got his hat handed to him recently when his Ant Group got banned from listing in the U.S. After that, even that Hong Kongers said “not can do”, Jack.
Looked at from a pure market perspective, their failed IPO is only a China problem.
Fintech companies from Russia to Brazil have done well this year, with some seeing record breaking IPOs.
Kazakhstan’s fintech company Kaspi.kz brought in more than $1 billion from their IPO on the London Stock Exchange last month making it one of the top two foreign listings in London. Kaspi is a financial services and e-commerce platform.
“The fintech space in Russia and Kazakhstan is very different from that in (other) markets,” says Andrey Mikhailov, senior analyst at Sova Capital.
The difference is that the companies are often spin offs from large entities. Ant Financial has Alibaba’s financial and tech muscle behind it.
Sovcombank, the “Klarna of Russia”, is rumored to be contemplating an IPO now. Klarna is a “buy now, pay later” program. The bank’s national payment plan platform, Halva, got a shot in the arm after Sovcombank acquired Qiwi’s Sovest consumer lending business. Qiwi’s share price fell after that, so some emerging market investors are thinking a Sovcombank IPO benefits from that acquired business.
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“Halva’s uptake is a testament to the demand from emerging markets and those markets can enable their consumer base to leapfrog technologies – for instance, Russia adopted contactless payments more rapidly than some developed markets because a paper checking system was never widely adopted, like it was in other countries,” says Sergey Khotimskiy, the first deputy chairman of Sovcombank.
Russia’s most successful player, Tinkoff, was always an online only bank operator. It has been public for a while now in London. Its stock is up 30% year-to-date ending November 10 while the VanEck Russia ETF is down 10%.
“Tinkoff had been an online credit card monoliner, while Kaspi had been a classical offline consumer finance bank, both active for more than a decade,” says Mikhailov.
In September, Tinkoff reached an agreement in principle for tech giant Yandex YNDX to take over their neobank in a $5.5 billion cash-and-shares deal. A “neobank” is a mostly online banking concern with no physical branch networks. Negotiations broke down, but Tinkoff has seen aggressive growth over the past few years and posted around $500 million in profits in 2019.
Brazil’s most prominent financial startup, Nubank, raised $300 million in equity investments recently, a lot of it from Goldman Sachs, according to a filing with the U.S. Securities and Exchange Commission.
The presumed election victory of Joe Biden, barring a surprising upset in the courts in some swing suits, is seen as a nice little tailwind for emerging markets, in general.
A 55% rally from the lows in the last 33 weeks is in line with the 52% average of the four previous rebounds in emerging market equity, led by the tech sector. Emerging markets have already regained their previous highs. This took 6.5 years post-1997, 3.5 years post-2000 and 1.5-years post-2016.
“This is a very rapid turnaround and an impressive rebound,” says Daniel Salter, head of research and equity strategy for Renaissance Capital.
Third quarter reports show equities nearly back to their pre-pandemic peak with debt performance varied depending on credit rating. China is one of the best-performing equity markets in the world right now.
Tech is the leader.
The KraneShares CSI China Internet (KWEB) KWEB is up 48.3% year-to-date, while the MSCI China is up 23.7%. The Nasdaq NDAQ is up 28%.
Fintechs and what the Russians refer to as “neobanks” are thriving. The growth potential for new players in this space gives investors a lot of new companies to watch for.
Ant Group was going to be another one. It would have been a blockbuster.
“Ant Group was poised to shatter the record as the largest initial public offering in history,” says Brendan Ahern, CIO of KraneShares in New York. The future timing of its IPO in Hong Kong is now uncertain as the company is forced to address how it facilitates consumer loans.
Ant Group’s IPO bomb comes as its parent, Alibaba BABA , is doing another of its Singles Day Global Shopping Festivals today. Last year, over the course of 24 hours on November 11, Alibaba recorded $38.4 billion of gross merchandise sales with Ant Group’s systems processing 459,000 payment transactions per second, about seven times the max capacity per second of Visa V , for instance.
For Ahern at KraneShares, he predicted Alibaba would beat last year’s sales record, even as China is still coping with a health crisis. China tech companies, like the fintech segment itself, still has a lot of growth ahead of it.