Fund for thought as big firms plan to gobble up Ant IPO shares

Biggest-ever initial share sale expected to be split evenly between Shanghai and Hong Kong, reports say

Fund for thought as funds plan to gobble up Ant IPO shares
Ant’s sale on Shanghai’s tech-heavy STAR Market and the Hong Kong Stock Exchange will be the biggest initial public offering on record. 

(ATF) Five major Chinese fund managers, including China Universal, E Fund, and Penghua will write five new funds built on Ant Group stocks once the Alibaba unit is listed in China and Hong Kong.

The news comes as reports indicated that initial share sale – which is expected to raise a record $35 billion – will be split evenly between bourses in the two cities.

According to the Chinese-language edition of China Daily, Ant stock will comprise 10% or each of the five funds, as long as enough investors are found. The revelations signal that retail investors will be able to get their hands on a piece of the Ant action, the report said.  

Ant’s sale on the Hong Kong Stock Exchange and Shanghai’s tech-heavy STAR Market, will be the biggest initial public offering on record surpassing oil giant Saudi Aramco's $29.4 billion float in December. The deal will elevate both trading venues into the top echelons of global exchanges.

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This issuance of five strategic allotment funds presents technical challenges. As long as the fund is purchased, 10% of the subscribed shares will be invested in Ant's new shares. The so-called strategic placement refers to the process by which the stock issuer and the strategic investor sign a placement agreement, and the strategic investor obtains the placement of shares. 

This process takes precedence over online and offline inquiries. The newly listed shares are first distributed to strategic investors, and then online and offline inquiries. The strategic allotment fund plays the role of a strategic investor.

Strategic allotments

Strategic allotments have some restrictions. One is that strategic investors must hold positions for more than a year. The other is that the Securities Investment Fund Operation and Management Measures from the China Securities Regulatory Commission stipulate that a single fund cannot hold only one type of stock or bond, but must diversify its spread. After securing Ant shares the five funds will have an 18-month closed period.

The launch of the funds must be agreed by both the fund company and the listed entity, the paper said.

Ant Group’s issuance pricing has not yet been confirmed, but market estimates put its valuation at more than $200 billion, according to the paper.

Ant aims to sell 10%-15% of its enlarged share capital, splitting the float evenly between Hong Kong and Shanghai, two of the sources said, requesting anonymity as the details were not yet public. 

Ant declined to comment. Bloomberg News first reported the details earlier on Wednesday.

After receiving positive initial feedback from prospective investors including some existing shareholders, Ant has decided to push ahead with the Hong Kong leg without cornerstone investors, who usually buy significant chunks of a local IPO, said three of the people. 

While the cornerstone practice is common in several Asian markets and helps bolster demand for large deals, such investors generally tend to push for as low an IPO price as possible, denting issuers' ambition for higher valuations. 

A high percentage of cornerstone investors would also sharply reduce post-listing trading volumes, as shares are locked up for at least six months in Hong Kong.

Ant, which won approval from the Shanghai Stock Exchange for the domestic IPO last week, plans to seek a listing hearing with the Hong Kong bourse in the coming days, said one of the people.

  • Additional reporting by Julie Zhu at Reuters