Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
Jack Ma is under siege Ant Group Co. plans to place its financial activities in a holding company that, according to people familiar with the situation, could be regulated more like a bank, potentially crippling the growth of the most profitable units.
The fintech giant plans to move any unit requiring a financial permit to the holding company, pending regulatory approval, said the people, who asked not to be listed by name because the case is private . The plans are still under discussion and subject to change, people said. Ant declined to comment.
The activities Ant plans to place in the holding include asset management services, consumer loans, insurance, payments and MYbank, an online lender in which Ant is the largest shareholder, the people said. Under the financial holding company structure, Ant’s businesses would likely be subject to more capital restrictions, potentially limiting the ability to borrow and expand more at the pace of recent years.
That said, the proposals suggest Ant could still operate in financial services outside of its payment business, raising investor concerns over the interpretation of the central bank’s Sunday message when it asked Ant to return to its roots as a payment provider. , suppressed.
“This means that China is still trying to encourage domestic consumption and they need platforms like Ant to help with consumer lending,” said Wang Zhen, a Shanghai-based analyst at UOB-Kay Hian Holdings Ltd. “The key is that consumer loans are not overused.”
SoftBank Group Corp. rose a whopping 4.5% in Tokyo trade on Tuesday. The Japanese company is the largest shareholder in Alibaba Group Holding Ltd., a major financier of Ant.
Chinese regulators also told Ant to devise a plan to overhaul his business, the latest in a series of steps to keep Ma’s online financial empire in check. While it stopped directly asking for the company to break up, the central bank stressed that Ant “should understand the need to review his business” and set a timetable as soon as possible.
“Growth would slow down a lot,” said Francis Chan, a Bloomberg Intelligence analyst in Hong Kong. Valuation of non-payment activities, including wealth management and consumer credit, could be reduced by as much as 75%, he said.
Ant was poised for a public listing last month that it would have estimated at over $ 300 billion, before regulators stepped in and scuttled the IPO.
Ant held $ 11 billion in cash and equivalents in June, according to the IPO filing. The company said in its prospectus in October that its subsidiary Zhejiang Finance Credit Network Technology Co. would use to apply for the license for financial participation.
Rules that went into effect in November require non-financial companies that control at least two cross-sector financial institutions to hold a financial holding license. Rules on how financial holding companies could be regulated are still under consideration.
| Main changes under draft rules | Impact on companies |
|---|---|
| Companies that provide online loans, such as Ant, should provide 30% of the financing for loans | Need more capital; Ant has about 2% of the loans on his books |
| Companies that are not allowed to operate outside of provincial bases without special permission from the bank watchdog. Permission, if granted, to be renewed every three years | Require some companies to reapply for licenses; more frequent monitoring |
| Those who lend in multiple provinces have one 5 billion yuan minimum registered capital | More capital, more control over operations |
| A shareholder cannot control more than one nationally operating microfinance | Limited extension vehicles |
Chan estimates that Ant will need to inject at least 70 billion yuan ($ 11 billion) of new capital just for his lending alone. That calculation is based on draft rules that require Ant to co-finance 30% of the loans, with a maximum asset leverage of five times.
Lifestyle units
Ant plans to omit its digital lifestyle activities – the services users associate with food delivery, on-demand neighborhood services and hotel bookings – from the financial holding company, one said. Ant will still be the parent of all those surgeries, the person added.
Ant is not currently working on a proposal to split the company, but is seeking more advice from regulators on what structure is acceptable and may change his plans based on that feedback, that person said.
| Recent rule changes |
|---|
| Companies spanning two financial sectors meet the asset class classified ‘financial holding companies with greater focus on capital, financing, property, etc. |
| Use of asset-backed securities to fund consumer loans up to a maximum of four times the net asset value; loans with financing from banks and shareholders may not exceed the intrinsic value of companies |
| Regulators said against cap interest rates on consumer loans |
Ant’s valuation could drop below $ 153 billion, Chan says, similar to where it stood two years ago after a round of fundraising.
– With the help of Lulu Yilun Chen, Zheng Li and Jun Luo
(Updates with SoftBank stock price, analyst voice)