A $3 Trillion Investor Craze Comes Undone After Ant’s Busted IPO

It’s the biggest busted trade in stock-market history. The collapse of Ant Group Co.’s initial public offering has triggered a dash to unwind billions of dollars in investor orders, side bets and margin loans.

In Hong Kong, where nearly a fifth of the population, by one estimate, had signed up to buy Ant shares, shell-shocked retail investors are starting to count their losses after Chinese regulators suspended the $34.5 billion deal days before trading was due to start in the financial hub and Shanghai.

“I don’t know what to say. Speechless,” said Chen Wu, a 35-year-old software developer, who borrowed money to buy Ant’s shares. “Yesterday, I was imagining a trip with my wife somewhere next year with the IPO proceeds. Now I’m calculating how much I will lose.”

Large investors have been left equally stunned, flooding their bankers and Ant executives with questions. One said the news has pummeled confidence in Shanghai’s Nasdaq-like STAR board that’s been hailed as a testing ground for relaxed listing rules. Another said they would now be hesitant to buy into Ant if the IPO was relaunched. Both spoke on condition of anonymity. Over-the-counter trades in the gray market anticipating a block-buster listing have been canceled.

It’s all part of the unprecedented unraveling of a deal that was billed as a coup for China’s financial markets and a triumph for one of its best-known entrepreneurs, Jack Ma. Instead, it’s turning into an eyesore. One silver lining is investors have been saved from what may have been a more painful outcome if regulators clamped down on Ant in the months following its listing rather than in the days before.

Ant declined to comment in an emailed statement.

Wu borrowed about HK$5 million to participate in the listing frenzy, which saw banks and brokerages provide about HK$500 billion ($64.5 billion) of margin loans to retail punters, according to the Hong Kong Economic Journal. They charged 3% to 5% for credit to buy Ant shares, meaning borrowers could be on the hook for hundreds of millions of dollars in interest over the five-day holding period.

While Wu will get back the application fees he paid toHuatai Securities Co., he now needs to pay out about HK$2,000 in interest charges.

“This is unfair,” Wu said. “The deal isn’t even completed. Why should I pay the brokers money?”

Brokers are in full-time explaining mode. At one securities firm, Futu Holdings Ltd., a discussion platform for investors on the Ant deal was flooded with more than 19,000 comments on Wednesday.

The most popular pleas included: “Please return my subscription fees,” or “Can we get back our losses through legal actions?” and “Can the Hong Kong regulators make a special case for Ant and let investors get back the costs for margin loans?”

Ire was also directed at Ant: “I’m going to delete my Alipay app,” one user said.

Sharing Pain

Ant’s dual listing in Hong Kong and Shanghai had attracted at least $3 trillion of orders from individual investors — enough money to buyJPMorgan Chase & Co. 10 times over. Hong Kong’s public broadcaster RTHK reported that more than 1.5 million retail investors had signed up for the offering, or about one in five of the population.

Some of Hong Kong’s most popular brokers said they will share the pain and also called on Ant to pick up the tab for the debacle.

Wu’s brokerage, Huatai Securities, has agreed tolower its margin rate to 2.5% from 3.9% for retail investors, while Futu Holdings andBright Smart Securities willwaive interest fees entirely.

Bright Smart said in a statement it hoped the city’s financial regulator will push Ant to compensate investors for margin-loan costs. “Doing this will help the company to win the confidence from the international investors and cement Hong Kong’s reputation and image as an international financial center,” it said.

That, of course, will do little to placate those who were hoping for a major windfall. Ant is China’s most-prized fintech and dominates the payments market through its Alipay app, offering everything from loans to insurance. Its shares traded earlier this week at a50% premium in the gray market and were expected to deliver a substantial pop when official trading started on Thursday. Those trades are now canceled, clients were told by brokers includingBTIG LLC, people familiar have said.

BTIG didn’t immediately respond to a request for comment.

Hong Kong’s central bank has also been forced to reassure markets that there’s ample liquidity in the system and funds being pulled from the city won’t pressure the currency lower. “We have the confidence and ability to maintain the currency and financial stability,” the Hong Kong Monetary Authority said in a statement.

Moving On

Some investors say they perhaps dodged a bullet with Chinese authorities looking to rein in Ant’s sprawling business with tighter oversight.

Dicky Mao, a 33-year-old tech media worker in Hangzhou, borrowed more than HK$10 million in margin loans from Hong Kong brokers to subscribe and planned to attend the listing ceremony in Shanghai on Thursday. Mao estimates his worst-case scenario is owing about HK$3,800 in interest, a small price to pay.

“What would be worse is if it successfully proceeded with the listing but shares kept dropping after that due to regulatory issues,” he said.

But he’s also holding on to a glimmer of hope that the IPO may be simply postponed.

On the mainland, theChina Securities Regulatory Commission hasn’t allowed Ant to refund investors yet because the IPO application hasn’t been withdrawn, a person familiar with the matter said, asking not to be identified as the matter is private. It’s unclear how long Ant can hold onto the money before it will have to refund it, the person said.

“It’s still unclear whether they’ll stick to the subscription results when the process resumes and that really bothers me,” Mao said.

— With assistance by John Cheng, Venus Feng, Evelyn Yu, Amanda Wang, Lulu Yilun Chen, and Julia Fioretti

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