Ant's in the hole.
The suspension of Ant Group's much-anticipated initial public offering — rumored to be the biggest of all time — came as a surprise to global investors earlier this month, but there's more to the story than meets the eye, Brendan Ahern, chief investment officer of KraneShares, told CNBC"s "ETF Edge" on Monday.
Ant Group's original $300-billion-plus valuation is now expected to be cut in half after Chinese officials said the company did not meet certain regulatory and disclosure requirements for its IPO just five days before the scheduled listing.
"You have all this retail money, predominantly individual investor money, in the IPO, and the regulator wasn't going to do something to hurt the company knowing that you'd only be hurting all these mom-and-pop investors," Ahern said.
"I think, actually, the regulator took a pretty pragmatic view and for both parties, in the long run, it's probably a better outcome," he said.
Ahern, whose company is majority-owned by a Chinese investment firm, said another attempt at a listing was "very unlikely to happen until about at least a minimum of six months."
While U.S.-based institutional investors "would've called the company's bluff" had it decided to list on a domestic exchange, China has only just begun to ratchet up its regulations and officials there will likely need time to parse Ant Group's financials, he said.
"The company really portrayed itself as a technology company, got that very high valuation, but it was going to increasingly fall under being regulated like a bank," Ahern said. "I think the regulator said all of the revenue, profitability, in the IPO prospectus is backward looking, and under this new regulatory regime, the company is still a great, great company, but certainly, the level of profitability is going to come down."
"As much as this is a disappointment, I think the regulator is saying to investors, 'You need more insight into how the regulation is going to affect this company going forward,'" he added.
Nick Colas, the co-founder of DataTrek Research, said regulators likely made the right decision even if their timing was less than ideal.
"If you look at the Chinese online payment system, it's dominated by two players," Colas said in the same "ETF Edge" interview. Those players are Ant, of which Alibaba owns one-third, and Tencent's WeChat Pay.
The two have accrued some 80% market share in China's online payment industry, which has "astounded" central bank officials around the world, the market analyst said.
"Federal Reserve officials like Loretta Mester have talked about how odd it is that two companies dominate that," Colas said. "I think the Chinese government has looked at it and said, 'Yeah, that really is actually a problem and we do need to work on figuring out how to structurally make it more sound,' because it is probably the biggest structural risk to the Chinese banking system."
"Unfortunately, they came to that realization a bit late for this IPO," he said. "I'm sure it'll happen at some point in a year or two."
Alibaba's U.S.-listed shares have fallen about 17% since Ant Group's IPO was shelved.