The Swiss private bank considers the recent cancellation of a record-breaking initial public offering by the financial group that is affiliated to Alibaba.

Ant Financial, the affiliate to Chinese e-commerce giant Alibaba, has stunned global equity markets by suddenly halting its initial public offering in Hong Kong and Shanghai – a massive liquidity event pegged at $34.5 billion. 

Controversy remains on exactly why the IPO was halted. The offering, due to take place on 5 November, was scrubbed after a meeting with Chinese financial regulators.

“The reason for the huge investor interest is that Ant has a unique combination of scale, profitability and growth. The IPO pricing values Ant in the top echelon of the largest listed financial institutions by market capitalisation, overtaking the likes of JP Morgan. Unlike other fintechs, Ant is highly profitable with strong net margins, while also being able to deliver stellar top-line growth driven by the development of new product and service offerings,” REYL, the Swiss private bank, said in a note. 

REYL’s chief investment officer, Daryl Liew, pointed out that digital payments are the backbone of Ant with Alipay being the dominant digital payment platform in China with over 700 million monthly active users. There are more than 80 million monthly active merchants on the Alipay platform, but only a quarter of them are using the functions and tools available on Alipay to increase business. This gives the business great upside potential. 

“The volume of these transactions that users churn out provide the data for Ant to develop innovative financial products in the areas of credittech, insuretech, and investmenttech,” Liew said.

On the downside, Liew said that Ant could be a “victim of its own hype” if the expected growth fails to meet high expectations.

“While the domestic growth story appears compelling, potential overseas expansion plans could be hampered due to the current backlash against Chinese investments. India banned Alipay earlier this year due to a border skirmish, while Ant’s proposed acquisition of MoneyGram in 2018 was blocked by a US government agency. As such, Ant’s overseas growth could be limited in the near term to the foreign entities it already owns,” he said.

Another risk, Liew said, is the impending paring down of a significant insider’s stake in Ant. Jack Ma-controlled corporate entities own around half of Ant’s shares and have publicly disclosed the intention to reduce this stake to 8.8 per cent, he continued. There is a lack of clarity over the timeframe and method for this divestment.

Liew added that the largest risk to Ant Financial comes from regulation. “There is always a delicate balance that regulators have to tread between managing financial risks and providing an environment conducive for financial innovation. Ant’s IPO suspension is reportedly due to new draft rules regulating online micro-lending to reduce systematic risk,” he said.

In December, Ant Financial partnered with US-based asset management group Vanguard to bring advisory services to the retail market. By some metrics, Ant Financial is one of Asia's largest wealth managers, certainly in areas such as the mass affluent segment.