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World's biggest IPO attracts strong demand despite lofty price tag

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Follow our series previewing the landmark IPO by Ant Group:

Ant Group's dual-IPO seeks to raise at least $34.4B in world's biggest offering

Ant reserves shares for Alibaba, other strategic investors as it readies IPO

China payments giants may face limited risk, tweak growth plans as US mulls ban

Ant-sized transaction margins will not spoil giant IPO valuation

China's startup STAR board will still have a long way to go after Ant's mega IPO

Ant Group's close ties with Alibaba to endure post-IPO

China's leverage caps on microlenders bring Ant's regulatory risk to forefront

China's Ant Group may seek clear blue skies in Southeast Asia to grow via M&A

Ant Group's lack of strong messaging platform concerns investors as IPO looms

Bank disruptors doubling down on mobile payments in China

Ant Group Co. Ltd.'s IPO will likely be oversubscribed despite its premium valuation as both institutional and retail investors seek to be a part of the expected growth of the Alibaba Group Holding Ltd. affiliate.

Ant will likely trade at a higher premium in both Hong Kong and Shanghai on its debut next week after its initial public offering was priced more expensive than its peers, analysts say. The Chinese financial technology company is taking orders in the world's biggest IPO that is seeking to raise at least US$34.40 billion via its dual listing in two of the biggest global markets for securities.

The IPO will close on Oct. 28. The "books are heavily oversubscribed. Very high quality, significant interest from sovereign wealth funds, global and regional long-only and tech specialist accounts," said a person familiar with the matter.

Institutional investors applied for 76.04 billion A-shares in the initial price consultation, or 284.45 times the offline offering portion, the company said in a filing in Shanghai.

Ant is selling its A-shares that will be listed on Shanghai's STAR Board at 68.80 yuan each. The H-shares in Hong Kong have been priced at HK$80.00 apiece, according to an Oct. 26 notice on the China Securities Regulatory Commission's website.

The shares are priced as a premium, although in line with industry expectations and the company's growth projections, analysts told S&P Global Market Intelligence.

Ant's net profit could grow 60% in 2021, considering this year as a low base due to investments in its fintech business and the coronavirus pandemic, said Billy Leung, Hong Kong-based director of Equity Research at Haitong International Securities.

"At a valuation of US$313 billion, this would imply 45x FY21 [price-to-earnings ratio], much higher than peers such as Alibaba and Tencent Holdings Ltd., which are trading at roughly 30x forward PER respectively," he said. "However, considering its exposure and market position in fintech, and the fact it is a dual [Shanghai and Hong Kong] listing, it could create a scarcity premium against peers."

The average P/E ratio of companies listed on the startup STAR Board was 88.54x as of Oct. 26, according to the bourse operator.

Biggest ever

Ant's dual-IPO will eclipse Saudi Arabian Oil Co.'s IPO proceeds of $29.4 billion in 2019, according to S&P Global Market Intelligence data, making it the biggest initial share sale on record.

Ke Yan, head of research at DZT Research, said at its current valuation, Ant shares may have room to rise between 20% and 30% in the Hong Kong market in the near future. There is also a valuation premium in Shanghai's A-share market compared with Hong Kong's H-shares, so the upside there will likely be larger than that of Hong Kong's.

Ant will debut its Hong Kong shares on Nov. 5, according to a filing to the Hong Kong Stock Exchange on Oct. 26. It is not known when the A-shares will debut.

Zennon Kapron, director of Singapore-based consultancy KapronAsia, is optimistic about Ant's shares on listing day, despite the premium price tag. "There's been a tremendous amount of appetite for this IPO, from both retail investors and institutional investors," he said. "There was never going to be a perfect size for the IPO. But certainly, given the numbers that we've seen come out, it will certainly be fully subscribed, if not tremendously oversubscribed."

He expects that the listing day will also be followed by "a significant run-up" from people who were not able to participate in the IPO but want to own some shares in the company.

Kapron said that although the listing date is close to the U.S. elections on Nov. 3, which will be Nov. 4 in the Hong Kong and mainland China timezone, the date was more "the timeline that the company was looking for, rather than guided by external events."

Even so, there's a lot of uncertainty around what happens in global markets after the election, he said. "So the soonest you can get to complete the listing ... the best day is today, the next best day is tomorrow. So, potentially, that could have had an impact on the timeline as well."

As of Oct. 26, US$1 was equivalent to 6.71 Chinese yuan.