Ant Group’s IPO was halted shortly after Jack Ma, its founder and biggest shareholder, criticised China’s regulators and state-owned banks in a public speech © Financial Times

Investors including BlackRock, GIC and Silver Lake have been left holding illiquid stakes in Ant Group after pouring billions of dollars into the Chinese payments company before its $37bn initial public offering was scuttled.

People directly familiar with the matter said the sovereign wealth funds, private equity and asset managers had been left in limbo after investing $10.3bn into Ant International, a subsidiary of the group owned by Jack Ma, in a highly selective, offshore pre-IPO fundraising round in 2018.

But since the blockbuster offering was halted at the last minute by Beijing in November, the people said, these investors had not been given any clarity on when the IPO may be revived, or what its valuation and business would look like after a restructuring that has been demanded by Chinese regulators.

Under an arrangement between Ant and its so-called international Class C investors, the cash was put into an offshore subsidiary that owns nothing. Aside from not having voting rights, there is little detail of the commercial terms of the agreement in Ant’s heavily redacted IPO prospectus.

Some of the investors are now conducting a review of the situation that includes considering litigation, according to a person close to Ant. However, they said that a number of investors had expressed hesitance over the prospect of litigation while the exact reasons for the Ant IPO being pulled remained unclear.

The result is that investors in Ant International are “screwed”, said one lawyer with direct knowledge of the situation.

“There are some agreements of what happens when things go badly. But back-up options are never that good. For international investors the way the deal was structured was a real leap of faith,” the lawyer said.

The creation of the offshore entity was not unusual in itself as a way to address China’s foreign ownership laws ahead of the IPO, said one Asia-based fund manager. What was unusual was the lack of clarity on the arrangement in the event of the cancelled IPO and the limited rights of the shareholders. “It is a future claim to ownership . . . but they now have to trust Beijing is not crazy,” the fund manager said.

China suspended Ant’s dual listing in Hong Kong and Shanghai, which had been set to become the world’s largest ever share offering, just days before its launch. Beijing also announced it would draw up regulatory changes for financial technology companies.

The halt came shortly after Mr Ma, Ant’s founder and biggest shareholder, criticised China’s regulators and state-owned banks in a public speech. Ant dominates mobile payments in China through its Alipay app. In the wake of the speech, Beijing summoned Mr Ma for questioning and he has not been seen in public since.

While institutional and retail investors that received allocations to the IPO were refunded, those who backed Ant International’s offshore round face uncertainty.

Others that took part included US private equity players Carlyle and Warburg Pincus, investment bank Credit Suisse, asset manager T Rowe Price and Asian state-backed funds Temasek and Khazanah Nasional Berhad. One investor, which asked not to be identified due to the sensitivity of the matter, said it was reviewing its options.

Strong demand for the offshore fundraise may have meant Ant was “in a very powerful position to be able to dictate commercial terms in which these investors got a cut of the allocation”, said Dickson Ng, an equity capital markets partner at law firm Eversheds Sutherland.

“I doubt they were able to negotiate or ask for certain rights whereby in the event the company is unable to do an IPO within a certain timeframe, that they could get some extra financial return,” he added.

These investors are now “stuck”, which could put any potential buyers of their Ant stakes in a strong bargaining position, said Wong Kok Hoi, chief investment officer APS Asset Management, which received an allocation of the Ant IPO before it was cancelled.

“I don’t think the IPO will happen this year or possibly even next year,” he added, pointing out that China had yet to enact its new fintech regulations and Ant still needed to complete its restructuring.

Ant and the investors named in this story all declined to comment.

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