Fintech giant Ant Group is facing heavy scrutiny over a potential conflict of interest involving the exclusive sale of investment funds via its online Alipay platform and its upcoming initial public offering (IPO) in Hong Kong and Shanghai.
25 September saw the exclusive sale via the Alipay platform of five hybrid securities investment funds with a combined value of 60 billion yuan (approx. USD$8.9 billion) and lock-up periods of 18 months, by a raft of leading Chinese fund managers including E Fund Management Co., China Asset Management, Penghua Fund Management, China Universal and Zofund.
Analysts said that the exclusive offering of the mutual funds via Alipay marks the first time that traditional sales channels have been bypassed in China, and could pose a major challenge to the prevailing dominance of the established banks.
Controversy has since arisen, however, over a potential conflict of interest between the exclusive sale of these funds and Ant Group’s upcoming listing in both Hong Kong and Shanghai, with claims emerging that this could lead to Ant Group effectively “underwriting its own IPO.”
According to 21st Century Business Herald the five fund companies executed strategic investor share subscription agreements with Ant Group, with plans for 10% of the assets of each fund to be allocated to new shares in Ant. 10% is the maximum that each of the funds is permitted to allocate to a single share.
The Herald report further states that during the sales of the funds Ant Group used phrases such as “invest in Ant” (投资蚂蚁) and “participate in Ant’s listing” (参与蚂蚁上市).
“Using one’s own sales channels to attract strategic allocated funds for one’s self on the open market is treading the line,” said one source from a Beijing fund manager. “There is dispute over how to demarcate separation of interests and how to protect the interests of investors.”
Other observers disagree, pointing out the sums involved are comparatively trivial and will not have an impact on the Ant Group IPO.
“This does not involve a conflict of interest,” said one source from a mutual fund in southern China. “For example if a bank engaged in the exclusive sale of products, and the funds were used to purchase stocks in that bank, that would definitely not be considered a conflict of interest.
“Also, the amounts allocated are too small. In terms of scale, the 60 billion yuan of these five finds can invest a maximum of 10% in Ant Group stocks, which is just 6 billion yuan. Yet the amount that Ant Group is expected to raise is USD$35 billion – or nearly 240 billion yuan. In terms of the overall listing of Ant Group, this will have a negligible impact.”
“Whether or not there is a conflict of interest will be determined by an investigation by authorities,” said an analyst from a brokerage in southern China.
Ant Group responded publicly to the accusations on 14 October by stating that the details of its strategic allocation funds had been “fully and completely disclosed,” and denied engaging in the underwriting of its own IPO.