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Ant Group under scrutiny over exclusive sale of shares in IPO

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China’s Ant Group, controlled by billionaire Jack Ma, is facing growing scrutiny for offering retail investors access to its $30bn share sale through an exclusive arrangement on its own mobile payments app.

Under the deal, investors bought exposure to the initial public offering — expected to be the world’s largest — through five funds that were exclusively allocated a portion of the company’s shares. Ant’s Alipay mobile phone application was the sole third party distributor of the funds.

“Is there a conflict of interest? Clearly there is,” said Peter Alexander, managing director at Z-Ben, a Shanghai-based consultancy, of Ant’s arrangement with the fund managers. “From an ethical standpoint you’re using your own platform to raise money from your clients to invest in your own company.”

In response to questions from the Financial Times, Ant said details about the funds had been “fully disclosed”, and that it was not underwriting its own IPO. “The newly established mutual funds that participated in Ant Group’s IPO as strategic investors . . . have been operating independently,” it said.

The planned dual listing of Ant, China’s dominant payments platform, in Shanghai and Hong Kong is one of this year’s most eagerly anticipated share offerings.

But while the Shanghai Stock Exchange approved the listing on its technology-focused Star market last month, Ant has yet to gain approval from China’s securities regulator for the Hong Kong portion of the IPO.

Fund managers and analysts said Ant’s arrangement with fund managers on Alipay could disrupt China’s capital markets business by diminishing the power of the country’s investment banks. It was unclear how China’s regulators would view the practice.

In addition to the normal retail tranche set to be offered to investors in Shanghai as part of the IPO, Ant allowed five domestic fund managers to buy up shares that they then offered to retail investors as “strategic allocation funds”. Alipay promoted the funds heavily ahead of China’s recent national holiday. 

The five funds — run by China Asset Management, China Universal Asset Management, Zhong Ou Fund Management, Penghua Fund Management and E Fund Management — said they had raised a total of Rmb60bn ($8.9bn). Each was permitted by regulations to invest as much as 10 per cent of their assets in Ant shares.

Retail investors in the funds are subject to an 18-month lock-up period.

“Ant Group is . . . enabling Alipay users to invest in mutual funds. Just last week it raised $9bn, some people [were] investing as little as one yuan,” said Jeffrey Lee Funk, a tech consultant and former associate professor at the National University of Singapore. 

Ant said in a statement on Tuesday that it was making “steady progress in the approval processes in Shanghai and Hong Kong”. This followed a Reuters report that regulators in China had delayed the approval of the listing in Hong Kong while they scrutinised Alipay’s arrangement with the funds.

The China Securities Regulatory Commission has not yet given the approvals Ant needs to get the green light for its IPO from the listings committee at the Hong Kong stock exchange, a person familiar with the matter told the FT. The person added that the IPO schedule remained within the normal timeframe.

Brock Silvers, former chief investment officer at Adamas Asset Management, said the Alipay arrangement with fund managers could have a “dramatic impact” on Chinese capital markets. “It aims to allow China Inc to increasingly bypass traditional investment banks in accessing vast pools of retail capital via companies like Alipay and [Tencent’s] WeChat Pay,” Mr Silvers said.

Z-Ben’s Mr Alexander said Ant could face resistance from China’s banking watchdog. But he added that the arrangement did not, to his knowledge, violate any financial regulations.

China’s securities regulator said in guidelines effective this month that fund distributors should assess whether there were conflicts of interest when selling their products and disclose these to investors.

One Asia-based fund manager said Ant had set up “a walled garden” around a portion of its listing.

The company will offer at least 10 per cent of its shares between Hong Kong and Shanghai to raise as much as $30bn, with some analysts valuing the company at as much as $318bn.

Reporting by Primrose Riordan and Hudson Lockett in Hong Kong, Mercedes Ruehl in Singapore and Ryan McMorrow in Beijing



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Robinhood seeks valuation of up to $35bn in IPO

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Robinhood updates

Online brokerage Robinhood is seeking a valuation of up to $35bn in its initial public offering, one of the most hotly anticipated stock listings of the year.

Robinhood is offering about 55m shares of its class A common stock at between $38 and $42 as it seeks to raise more than $2.3bn, the company said in a filing with the US Securities and Exchange Commission on Monday. The founders and chief financial officer are offering about 2.6m of the shares.

Thirty-five per cent of the company’s IPO shares will be available to retail traders, the company said. Robinhood plans to list its stock on the Nasdaq under the symbol “HOOD”.

Robinhood had been targeting a valuation of at least $40bn in the IPO, the Financial Times previously reported.

Goldman Sachs, JPMorgan Chase and Citigroup are among the banks underwriting the deal.

The Bay Area-based broker became synonymous with the recent surge of retail investing by day traders. Its registered users have doubled since the start of 2021 to 31m.

Robinhood’s total revenue grew 245 per cent in 2020 from a year ago to $959m. It also reported net income of $7m, compared with a net loss of $107m in 2019, according to the SEC filing. The company estimated it had 22.5m funded accounts, which are tied to bank accounts, as of the end of June, up from 18m at the end of the first quarter.

Robinhood’s mission to “democratise finance for all”, with no commission fees and an easy-to-use interface, has drawn a new demographic of young investors into markets. The median age of users is 31, younger than those at rival US brokers such as Charles Schwab or TD Ameritrade. The company says more than half of its customers are first-time investors.

Robinhood, which offers both equity, derivative and cryptocurrency trading, has also come under scrutiny by lawmakers and regulators as its popularity has grown. It has been criticised for practices such as “payment for order flow”, from which Robinhood derives the bulk of its revenue, and gamifying investing into a “casino”-like experience.

In late June, the US Financial Industry Regulatory Authority levied a $70m penalty against Robinhood for causing what it described as “widespread and significant harm” to customers.

The IPO valuation is of particular importance to investors who bought convertible notes issued in February, when Robinhood raised emergency funds to meet its obligations to clearing houses during the height of the GameStop trading mania.

These notes will convert into equity at a discount of at least 30 per cent to the offer price. For the most senior debtholders, the conversion is capped at a valuation of roughly $30bn.

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Pershing/UMG: Dance to the music of time

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Bill Ackman updates

Hold off the requiem. Regulators may have forced Bill Ackman to scrap plans to acquire 10 per cent of Universal Music Group via his Spac, but the deal lives on. Rather than investors in Pershing Square Tontine Holdings receiving UMG shares, plus an extra $1.6bn cash left to spend, and warrants, shares in the record label will go into Ackman’s Pershing Square hedge fund.

The original deal had kerbside appeal. Unlike many other Spac deals, there was no dilution from free founders’ shares. It gave those investors access to a resurgent music label on a slightly cheaper multiple than rival Warner Music. Vivendi, UMG’s current owner, plans to list the shares in September so buying in via Ackman’s Spac would have given investors a cut-price backstage pass.

True, an implied enterprise value of €35bn exceeded the €30bn accorded to a similarly sized acquisition by a consortium led by Chinese tech giant Tencent just six months earlier. But it was comfortably shy of the €40bn or so pencilled in by optimistic brokerage analysts. JPMorgan, unsurprisingly home to Ackman’s favourite analyst, put the figure as high as €50bn. On those numbers — $20.20 per share, a shade below PSTH’s current share price — the RemainCo cash and warrants would come cheaply.

Buying Vivendi, which plans to disburse shares of UMG on Amsterdam Euronext via a special distribution, means rump assets have an uncertain value. Citi analysts put this above €14 a share. UMG distributed as a dividend in kind also attracts withholding tax liabilities, to which some minorities, such as Bluebell, have objected. It has moaned about any previous tax advantages accorded to Ackman’s Spac purchase.

Pershing says it plans to remain a shareholder in UMG for the long haul. For a music industry that has cycled through myriad different musical genres and business models, this sounds bold. UMG has been the home of music idols from The Beatles to Lady Gaga and Taylor Swift. A groundbreaking Spac, it appears, was one revolution too much for regulators.

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‘The IPO is a black box’: Robinhood’s unconventional stock market debut

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IPOs updates

The decision by retail brokerage app Robinhood to reserve an unusually large stake in its initial public offering this week for its own customers has money managers girding for a volatile trading debut. 

The company, which enabled retail investors to drive vertiginous moves in meme stocks, expects to allocate as much as 35 per cent of the 55m shares it plans to sell to investors buying directly through its app.

Robinhood heralded the decision as a means to democratise a corner of the stock market ordinarily roped off for institutions. But it marks a departure from typical IPOs, where 10-20 per cent of the shares are earmarked for the retail segment.

The move creates a quandary for the large institutional investors that can make or break an IPO. Some intend to sit out the listing, fearful that the outsized retail allocation signals lukewarm enthusiasm for the stock by other big money managers, according to a top asset manager who invests in IPOs. Robinhood’s shares are expected to price on Wednesday and begin trading on Thursday, according to people briefed on the matter. 

Others have struggled to compare the potential behaviour of retail buyers in Robinhood’s IPO to historical norms. In traditional listings the retail buying base largely comes from customers with the underwriting banks — often wealthy people who maintain brokerage accounts at such institutions as Bank of America or JPMorgan Chase.

By contrast, half of Robinhood’s customers are novice investors and many opened their accounts in the past year.

Line chart of Year-to-date performance (%) showing Recent US IPOs have lagged behind broader market gains

Robinhood has said it would allocate shares at random through its IPO Access system, a feature of its platform that allows investors to apply to obtain shares at the IPO listing price for companies that offer their shares to retail customers.

“Everybody expects more volatility in the trading, that’s it,” said one equities trader at a large New York asset manager. “The more stock in retail hands, the more volatile it is.” 

The power of Robinhood’s community of small investors to collectively move share prices came into sharp focus this year. Fuelled by social media, they helped drive meme stocks such as theatre chain AMC and video game retailer GameStop into the stratosphere with little apparent connection to their underlying businesses. Some on Wall Street are bracing for similar swings in Robinhood’s own shares. 

“With this novel allocation to retail investors, the IPO is a black box in terms of how they’re going to allocate and who they’re going to allocate to, versus the investment banks, where you know what is going to happen in the after-market,” said David Erickson, a lecturer at the University of Pennsylvania’s Wharton business school and former IPO banker.

“Most serious investors will wait and see what happens. Maybe Robinhood will become the next meme stock,” he added.

Traders and portfolio managers said they expected that retail traders on Robinhood could drive greater price swings than the hedge funds that make up a portion of the buying base in most IPOs.

And while that could mean a choppy first day of trading, one trader noted there was also the possibility of a large pop, given how traders on Robinhood have turned other companies into must-buy stocks.

Robinhood declined to comment. The Menlo Park, California-based company is seeking a valuation of up to $35bn as it aims to price its shares between $38 and $42 apiece. The stock will trade on the Nasdaq under the ticker ‘HOOD’.

“They may get a ‘meme-bump’ . . . but it’s not sustainable,” said Logan Allin, founder of Bay-area fintech investment firm Fin Venture Capital, who declined to join Robinhood’s earlier funding rounds. “The hype will be shortlived.”

The lock-up for institutional investors, a period in which they are not permitted to sell their shares, will be 125 days after the IPO, according to the prospectus, which Allin and other experienced investors said was unusually short. The average lock-up is more than 180 days, according to Dealogic data.

Retail investors can sell their shares as soon as the stock begins trading, adding to investor anxieties that DIY investors will be more likely than large institutions to sell positions, pressuring the share price. However, if retail investors who bought through Robinhood directly sell within 30 days, the company will ban them from IPO access for two months.

“We’d never rule anything out, especially with 35 per cent of the deal being placed with Robinhood customers,” the institutional investor said. “They don’t care about valuation in a lot of things they traffic in.”



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