The mammoth dual listing for Chinese fintech giant Ant Group is scheduled to be listed this week. The listing could be the world’s largest initial public offering, surpassing the record set by Saudi Aramco’s $29.4 billion float last December.
However, Ant Group’s world record-setting initial public offering in Shanghai and Hong Kong has been suspended. But the reason is complicated.
Due to the material matters reported, your company may no longer meet the conditions for offering and listing, or the requirements for information disclosure.
-it said in a statement
The Shanghai and Hong Kong stock exchanges made the announcement on Tuesday. $Alibaba Group Holding Ltd(BABA.US)>The Shanghai and Hong Kong stock exchanges made the announcement on Tuesday. $Alibaba Group Holding Ltd(BABA.US)$ which owns a roughly 33% stake in Ant Group, saw its Hong Kong-listed shares tumble by more than 7% in Asia trade on Wednesday. Alibaba shares on the New York Stock Exchange closed more than 8% lower overnight.<nbsp;which owns a roughly 33% stake in Ant Group, saw its Hong Kong-listed shares tumble by more than 7% in Asia trade on Wednesday. Alibaba shares on the New York Stock Exchange closed more than 8% lower overnight.
Ant Group's IPO catches people's eyes, a large sum of people subscribed for this stock, leading oversubscribed.
Understanding a hot IPO
Companies that opt to issue stock via an IPO can raise a substantial amount of money in a short time, particularly if the issuance attracts public attention and becomes a hot IPO. An initial public offering gives a private company a chance to cash in on the public’s demand for its shares.
When a company decides to make such an offering, it typically finds one or more investment banks to underwrite the issuance and make arrangements to sell shares on public stock exchanges. The underwriters market the IPO as they help the company set a per-share price. The underwriting banks will assume a specific number of shares, which they will offer to their buyers, and collect a portion of the sale proceeds as a fee. These buyers may be institutional or retail clients. The part they receive is the underwriting spread.
Oversubscribed hot IPO
Hot IPOs appeal to investors who anticipate that the demand for shares will outstrip the number of shares offered. IPOs with more demand than supply are considered oversubscribed, making them a target for short-term speculators as well as those who see a long-term opportunity in holding the equity.
Also, increased demand for the shares will lead to a sharp rise in the price of the stock soon after it begins trading. Usually, this sudden increase in share price is not sustainable.
Because a hot IPO is likely to be oversubscribed, companies will often permit their underwriters to increase the size of the offering to accommodate more investors and make more money. The trick for underwriters lies in balancing the size of the IPO with the appropriate price for the amount of interest in the shares. When done correctly, this balancing will maximize profit for the company and its underwriter banks.
If a hot IPO is an underpriced issue, it will usually see a rapid rise in price after the shares hit the market and the market adjusts to the high demand for the stock. Conversely, overpricing the IPO can lead to a rapid fall in prices, even though the higher price benefits the underwriting bank issuing the stock since it only makes money on the initial issue.
Initial shareholders are significantly affected by sharp moves in price after trading opens to the general public. Underwriters sometimes give preferential treatment to high-value clients when offering shares in a hot IPO, so they bear some risk if they overprice the stock. However, a hot IPO does not provide a guaranteed win for investors. Sometimes the hype of an upcoming IPO does not bear the planned fruit for the investor.
Benefits and costs of oversubscribed securities
When securities are oversubscribed, companies can offer more of the securities, raise the price of the security, or partake in some combination of the two to meet demand and raise more capital in the process. This means that they can raise more capital and at better terms.
Companies will almost always hold back a significant portion of their shares to allow for future capital needs and management incentives, so there is usually a standing reserve of shares that can be added if an IPO is looking to be badly oversubscribed without having to register new securities with regulators.
More capital is good for a company, of course. Investors, however, have to pay higher prices and may get priced out of the issue if the price rises above their willingness to pay. It may also hurt investors who herd into a hot IPO that drives the initial market price far above fundamentals, only to see a collapse in price over the following weeks and months.