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China tech

Ant Group's mega IPO faces specter of US sanctions

China's fintech king possibly forced to find new underwriters and delay listing

The Alipay app is a popular method of payment in China, but has limited use outside the country.

SHANGHAI/WASHINGTON -- The threat of U.S. sanctions against Ant Group has sparked concern about the impact on the Chinese fintech company's initial public offering, which is expected to be the largest stock debut in history.

Known for its Alipay payment app, the company is a unit of leading Chinese e-commerce platform Alibaba Group Holding and is among many Chinese tech companies to come under pressure from the deteriorating ties between Washington and Beijing.

The U.S. Department of Defense submitted a proposal to the Trump administration to add Ant Group to the so-called entity list, Reuters reported this week, amid concerns that the e-payment service could provide sensitive data belonging to U.S. users to the Chinese government.

One source at Ant strongly denied the possibility.

"Only Chinese people can use Alipay in the U.S." the source said. "There is no risk that the personal information of Americans would be leaked."

The U.S. concerns likely stem from the Alipay requirement that users register credit cards and other personal information. The app is also tied to a wide range of services from ride-hailing to Alibaba's e-commerce platform that could provide further insights into its users' lives.

Still, as a general rule, foreign users can only make Alipay payments in China.

It is unclear how Ant would directly be affected if it is added to the entity list. While the company would no longer be able to purchase U.S. products and software, it would still be able to offer payment services to American companies. Any impact on its U.S. business would likely also have a minimal impact on earnings, since most of its 1 billion-plus users are in China, and overseas operations account for just about 4% of revenue.

The entity list would likely have the most impact on Ant's IPO plans. The company is aiming for a dual listing in Hong Kong and on Shanghai's Nasdaq-style STAR market. It had received approval for its Shanghai listing in September, and was expected to debut there by the end of this month. If it is sanctioned by the U.S., the company will likely face additional screening on the potential impact to its business activities.

There is also concern that the Trump administration could decide to impose even tougher sanctions on Ant, in the form of an executive order barring it from doing business with any U.S. individual or company. Trump, in his executive order against TikTok, had invoked the International Emergency Economic Powers Act, which allows the president to take a wide range of actions against a national threat like terrorism.

If Ant is blocked from doing business with U.S. companies, it could be forced to choose new underwriters for its IPO. For example, its Hong Kong listing currently involved three U.S. underwriters including Citigroup. A change at this time could lead to major delays for its IPO.

China hawks within Trump administration have urged U.S. investors not to participate in Ant's IPO, Reuters has reported. This could affect Ant's offering price for its IPO, which is currently expected to raise up to $35 billion and top the record set by Saudi Aramco in December last year.

But the U.S. system sets a high bar for government intervention in private business deals. Courts have previously blocked government restrictions imposed on TikTok and other companies.

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