Nov 3rd 2020 HONG KONG AND SHANGHAI

Jack Ma was in a triumphant mood shortly after Ant Group, his Chinese fintech firm, priced its initial public offeringset to be the worlds biggest ever, with almost $40bn worth of shares sold. Speaking at a summit in Shanghai on October 24th, he chided regulators for being too focused on preventing financial risks. Red tape, he said, only held up innovation. Ten days later his words came back to haunt him. Less than 48 hours before its stock was to

begin trading in Hong Kong and Shanghai, Ant was forced by Chinese regulators to halt the flotation.

The group said in a regulatory notice to the Hong Kong exchange that the IPO, scheduled for November 5th, had been suspended because the company may not meet listing qualifications or disclosure requirements, after the regulator conducted an interview with Mr Ma and other executives. The filings also mentioned recent changes in the fintech regulatory environment, hinting that newly published rules may have got in the way. The sudden suspension also suggests that some powerful officials may be displeased with Mr Ma, a self-made man who, by the conservative standards of big business in China, has an outspoken streak.

Yet the turn of events is not just painful for Ant. It reflects poorly on Chinas regulators. IPOs are rarely stopped at such a late stage. The deal was more than 800 times oversubscribed in Shanghai, and in Hong Kong last week the firm closed its book a day early. It was set to float in Shanghai on the star market, Chinas answer to Nasdaq, designed to lure home Chinese tech groups that have listed abroad. Instead, the last-minute halt of Ants listing highlights the opacity of the Chinese political system and the risks that can trip up even its most successful companies.

It is also easily the most public, and most disruptive, of Ants run-ins with regulators. The company has consistently adjusted its business as the rules around it have shifted. The IPO debacle appears to be partly related to one such case. Back in 2018 officials placed caps on asset-backed securitisation, upending Ants model of selling its loans on to banks. So it pioneered a new approach: consumers and merchants borrowed through Alipay, its payments service, on their smartphones, but the money came from banks. Ant was simply the conduit, collecting a technology-service fee. This conduit business boomed, with credit growing to outstrip payments as Ants biggest source of revenue.

On November 2nd the Chinese central bank and banking regulator published new draft rules for online micro-lending, which looked almost perfectly tailored to undercut Ant. Online lenders will need to fund at least 30% of any loan they supply jointly with banks. That could force Ant to keep much more of the credit that it originates on its books; currently, 98% is held as assets by other firms, off Ants balance-sheet. Additional disclosure requirements could also make it much more cumbersome for banks to partner with the group. Officials at Chinas banking regulator have already pressed commercial lenders to adhere to the new rules, according to Bloomberg, in effect making many of Ants transactions non-compliant.

Depending on how the rules are implementedthey will not be finalised until DecemberAnts capital-light model could end up looking much less sleek. It will be valued more like a financial firm than a tech firm, said a strategist with an Asian sovereign-wealth fund. Given Ants track record, it seems a fair bet that it will quickly adapt to the new rules, but its credit operations are likely to face much slower growth and lower profitability.

Investors had previously given Ant a forward price-to-earnings multiple of 40, in line with big global payments companies. Most Chinese banks, in contrast, trade on multiples of less than ten. Ant had been on track for a market capitalisation north of $300bn, higher than any bank in the world. Now it is likely to fall well short of that. Shares in Alibaba, a Chinese e-commerce giant that owns a third of Ant, tumbled by 8% after the suspension of the listing was announced.

Some investors may at least be grateful to regulators for introducing the new rules before the IPO, however late in the process, allowing them to reprice Ant before they buy its shares. But it is not as if the IPO came as a surprise or the company was an unknown entity; regulators could have acted far earlier. The possibility that they were motivated by a grudge against Mr Ma, and perhaps irritated by his recent speech, cannot be ruled out.

Ant had gone to great lengths to brand itself as a tech firm, not a bank. It describes its business as techfinie, putting technology firstnot fintech. In the lead-up to its listing, it asked brokerages to assign tech analysts, not just banking analysts, to cover it. Ultimately, though, its focus has always been on Chinas financial sector. That is the industry ripe for disruption, and where the money is. But as Ant and legions of investors have been reminded, that is also where the regulators lurk.

Wall Street Journal MARKETS

With Ant IPO in Limbo, Funds Let Investors Cash Out

By Xie Yu Nov. 11, 2020 4:11 am ET

Funds that touted access to Ant Group Co.s blockbuster share sale will let investors cash out early, following a social-media outcry after the financial-technology giants listing was abruptly halted by Chinese regulators.

In the run-up to the now-suspended initial public offering, five mutual funds in China raised 60 billion yuan, or about $9.07 billion, from more than 10 million small investors. The funds, managed by some of the countrys largest investment firms, were sold via Alipay, Ants popular mobile payments and lifestyle platform.

The funds used a marketing blitz to highlight that they could invest up to 10% of their assets in Ant, though this wasnt written in their contracts with investors, or in fund-sales documents. Many investors were expecting Ants shares would surge after the IPO, which at more than $34 billion was set to be the worlds largest ever. Money invested in the funds was to be locked up for 18 months.

However, after Ants IPO was suspended last week, some investors argued they were cheated, as the main attraction for them was owning shares in Ant. You should give back our money given Ant cannot go public now. This fund without Ant is no longer what we want, one investor wrote online.

Last Thursday, the China Securities Regulatory Commission said it had seen the complaints by fund investors. It urged fund houses to give priority to investors interests and fully consider their reasonable demands.

The funds already appear to have made some other investments. Four of the five funds are above water, with slightly higher net asset values than when they launched, their latest disclosures show. Fund holdings arent disclosed.

Investors in the five vehicles can apply to redeem their investment between Nov. 23 and Dec. 22 without incurring fees, the fund houses and a subsidiary of Ant said in a joint statement Tuesday.

Repayments will be based on the floating net asset value per fund unit, a way of pricing mutual-fund investments. The statement didnt say whether investors who kept their holdings would still be subject to an 18-month lockup.

The five funds will also apply to become listed funds trading onshore in China. That would allow investors to exit at a later date by selling units to other investors on the open market, offering an alternative exit to requiring the fund managers to buy the units back.

Some investors posting on investment forums welcomed the statement. One said the arrangement took investors interests into account, adding, Lets exit.

Not all investors plan to sell out. I bought the fund because I am bullish on the sector, wrote someone on a chat room operated by East Money, an online broker and investing website.

The fund managers include two of Chinas largest by assets under management, E Fund Management Co. and China Asset Management Co., or ChinaAMC. The other three funds are run by China Universal Asset Management, Penghua Fund Management Co. and Zhong Ou Asset Management Co.

The mutual funds were hugely popular partly because individual investors can only place direct orders for shares in IPOs on Shanghais STAR Market if they meet minimum requirements for brokerage assets and trading experience.

QUESTION CATEGORY 1: (50 points)

1- Assume you are an expert at the Capital Markets Board of Turkey. Would you approve the prospectus for the ANTs IPO, based on the material in the above articles? If yes on what grounds? If no, for what reason? If you have any doubts for approving or not approving, what other information would you require? How would you use that additional information? (15 points)

2- Would you think that the securitization business that ANT operates would affect your decision making in approving or not approving the prospectus as an expert at the Capital Markets Board? (15 points)

3- Explain your opinion on Chinese authoritys decision to halt the IPO in terms of the 6362 Capital Markets Law of Turkey. After the approval of the prospectus, would you be able to stop the flotation of ANTs shares according to the Capital Markets Law of Turkey? If yes, in what grounds?

the 6362 Capital Markets Law of Turkey

ARTICLE 1 - (1) The purpose of this Regulation is to regulate the procedures and principles regarding the payments to be made by YTM to the applicant beneficiaries pursuant to this Regulation due to the capital market instruments whose ownership has been transferred to YTM since they are not delivered until the end of the seventh year following the date of registration. Rest ARTICLE 2 - (1) This Regulation has been prepared on the basis of the provisional article 10 of the Law dated 6/12/2012 and numbered 6362. Definitions and abbreviations ARTICLE 3 - (1) In this Regulation; a) Stock Exchange: Borsa Istanbul Joint Stock Company, b) Issuer: Legal entities and investment fund founders who have issued capital market instruments transferred to YTM in accordance with Article 13 of the Law partially canceled, c) Law: Capital Market Law, ) Board: Capital Markets Board, d) MKK: Central Registry Agency Joint Stock Company, e) YTM: Investor Compensation Center, expresses.SECOND PART Procedures and Principles Regarding Applications Application ARTICLE 4 - (1) Of the capital market instruments whose ownership has been transferred to YTM since they are not delivered until the end of the seventh year following the date of registration; Those who have not been sold in accordance with the relevant legislation are the same within the framework of the principles specified in Article 8, and those that have been sold, taking into account the sales amounts determined within the framework of the principles in Article 9, together with the income stated in Article 10, the right holders who apply to YTM Paid on condition that a letter of undertaking and release is received. (2) For payment, it is necessary to apply to YTM together with the documents listed in Article 5.Application period and method ARTICLE 5 - (1) Applying to the central address of the YTM by the right holders who request payment within the scope of this Regulation or their attorney submitting a notarized power of attorney by means of registered mail with return receipt within 10 years from the effective date of this Regulation or by delivering it through private companies against signature. is required. (2) In case of appeal to the judiciary by the right holders, the periods specified in the first paragraph do not run during the trial.(3) The following documents must be included in the application form: a) For natural person right holders; 1) A copy of the official identity document or passport approved by the official authorities containing the citizenship number of the right holder, 2) Residence address and other contact information, 3) A letter of undertaking stating that no lawsuit has been filed against the Board and / or YTM, or enforcement proceedings have not been initiated, or that the lawsuit / enforcement proceedings will be waived, in case the case is concluded, the original court order or a certified copy of the court's decision, 4) The delivery report to be issued within the framework of Article 6 regarding the delivery of physical capital market instruments to the issuer or the annulment decision taken from the court due to loss.b) For legal person right holders, in addition to the documents in sub clauses (2), (3) and (4) of clause (a); 1) Full title of the legal entity, tax and Central Registry Number and / or trade registry number, 2) Identity information and citizenship number of the person or persons authorized to represent and bind the legal entity and the newly dated signature circular 3) The newly dated authorization and activity certificate, showing the persons authorized to represent and bind the legal person to which it is registered or registered. (4) Additional information and documents may be requested by YTM if deemed necessary.THIRD PART Delivery, Destruction and Determination of the Right Ownership of Capital Market Instruments Delivery and destruction of capital market instruments ARTICLE 6 - (1) The right holders who will apply within the scope of this Regulation are required to deliver the capital market instruments physically in their possession to the issuers with at least three samples to be prepared in such a way that at least one sample containing the information in the example in Annex-2 will remain with the issuer. (2) In the delivery report prepared by the issuers in accordance with the first paragraph, the arrangement, group, serial number, coupon number, coupon number, if any, the details and content of the coupons, which do not include any hesitation, are included.(3) Regarding the capital market instruments received by the issuers; For those registered in the MKK system, the arrangement, group, serial number, denomination value, coupon number information are entered into the MKK system electronically and the said capital market instruments are delivered to MKK after the entry process is completed. During the delivery of capital market instruments to MKK, the letter of undertaking in ANNEX-3 must also be submitted to MKK. (4) The received capital market instruments are kept by the issuers by taking necessary custody measures in a way that their physical capacity is prevented until their delivery to MKK as specified in the third paragraph. (5) Physical capital market instruments are received by MKK provided that the information entered in the MKK system is compatible. Capital market received by MKK