Breakingviews - Brace for a post-euphoric Ant IPO swoon

FILE PHOTO: A logo of Ant Group is pictured at the headquarters of the company, an affiliate of Alibaba, in Hangzhou, Zhejiang province, China October 29, 2020. REUTERS/Aly Song/File Photo

HONG KONG (Reuters Breakingviews) - Everyone and their cousin wants in on Ant’s record-shattering $34 billion initial public offering. The buzz has been palpable in Hong Kong, where fund managers report calls from distant relatives hoping to buy shares of Jack Ma’s Chinese financial technology giant. Retail investors in the Asian financial hub placed orders worth $168 billion while the Shanghai portion attracted bids from small investors worth $2.8 trillion. The fear of missing out is a powerful drug, but a letdown potentially awaits.

Some of the demand can be explained by big indexes. Creators MSCI and FTSE are expected to add Ant’s Hong Kong shares within days. Investors tracking or benchmarked against them will be terrified of being left out of any gains from such a hulking constituent. This close to year-end especially, they would struggle to catch up. And year-end bonus deliberations loom large.

Hot mega-deals don’t always immediately deliver, however. Facebook’s 2012 IPO is one example. Nasdaq glitches as trading began on the upsized $16 billion deal didn’t help. There were reports of selective disclosures, and apprehension – ultimately misguided – about the company’s ability to make the transition from web to mobile. The shares tumbled 10% within two days. It took 14 months for them to climb back to their $38 issue price.

Alibaba, Ant’s one-third shareholder, provides another humbling reminder. In 2014, its $25 billion New York IPO priced well below the top price estimates. The shares popped 38% on the first day, but within a year they went from trading as high as 44 times expected earnings to half that multiple.

By most accounts, Ant’s future looks promising. And yet it is poised to reach public investors with a market capitalisation of $312 billion, imputing a valuation worth a punchy 31 times next year’s forecast earnings. Trading is due to begin on Thursday. Broader skittishness amid the U.S. election and regulatory crackdowns from Beijing are among the many risks. Even if Ant eventually lives up to its mammoth expectations, there’s good reason to brace for a shorter-term swoon.


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