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SINGAPORE / HONG KONG / BEIJING (Nov 5): They say talking is cheap. Tell that to Jack Ma.
China’s brightest corporate star was just days away from seeing its Ant Group listing on the stock market in a record $ 37 billion deal when it decided to launch a public attack on financial institutions and banks. from the country.
The regulatory system was stifling innovation and must be reformed to boost growth, billionaire Ma said at a summit in Shanghai on Oct. 24 attended by the great and good of China’s financial, regulatory and political system.
Chinese banks, he said, operated with a “pawn shop” mentality.
It was this speech that set off a chain of events that ultimately torpedoed the listing of Ant, the fintech titan Ma founded, according to interviews with government officials, corporate executives and investors. All requested anonymity to reveal confidential details.
Wounded by the attack, Chinese regulators and Communist Party officials set out to control Ma’s sprawling financial empire, culminating in the suspension of the IPO on Tuesday, two days before the expected market debut of Shanghai and Hong Kong. sources said.
While Ma may not have realized the impact his words would have, people close to him were surprised to learn in advance about the tone of the speech he planned to deliver, according to two sources close to Ma.
They suggested that the 56-year-old soften his remarks as some of China’s top financial regulators should attend, but he refused to budge, believing he should be able to say what he wanted to say, the sources said.
“Jack is Jack. I just wanted to say what I thought,” said one of the people.
It was a costly miscalculation.
Several senior financial regulatory officials were furious at Ma’s criticism, two sources said. Reuters, with a font that characterizes the speech as a “punch to the face.”
State regulators began compiling reports, including one on how Ant had used digital financial products like Huabei, a virtual credit card service, to encourage the poor and the young to accumulate debt, according to the two people.
The general office of the State Council compiled a report on public opinion on Ma’s speech and presented it to top leaders, including President Xi Jinping, the sources said.
Some of the reports indicated that public sentiment was negative about Ma and her comments, the people said.
Top Chinese leaders then became more involved and called for a thorough investigation of the company’s business activities, ultimately leading to the arrest of the world’s largest IPO, three of the sources said.
The People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange and the Information Office of the State Council did not immediately respond to Reuters requests for comments.
Ma could not be immediately reached by Reuters for comment and e-commerce group Alibaba, which handles media inquiries for Ma, did not respond to a request for comment on this story from its main founder.
The chance of the float getting back on track in the short term is slim, according to six of the people, as regulators seek to tighten scrutiny of the company. No listing is expected for at least the next few months, two said.
Scrutiny intensifies
It was a surprising change for Ma, who would have added at least $ 27 billion to her IPO net worth.
In years past, most regulators had left the billionaire to his own devices, partly because of his close ties to some top government officials, according to five of the sources, but also because of national pride in his success.
Ma, a former English teacher, is one of China’s internet pioneers, building an e-commerce empire with Alibaba and a financial technology giant with Ant.
When the People’s Bank of China tried to regulate Ant’s payment and wealth management business about five years ago, Ma bypassed the central bank after failing to reach consensus with regulatory officials and put pressure on the central government. The PBOC later dropped those regulatory plans.
“Jack Ma did not bypass the usual process of communicating with relevant regulators regarding Ant’s wealth and payment management business,” Ant’s spokeswoman said in an email response to Reuters.
But with his Oct. 24 speech, Ma misjudged Beijing’s shifting priorities, according to a senior regulatory source, believing he could challenge the financial establishment but retain the support of the central leadership.
The bigger picture was that one of the government’s main goals this year is to shore up the country’s financial sector and strengthen regulatory oversight to prevent systemic risks in an economy hit by a pandemic, the person said.
Even before Ma’s speech, Chinese regulators were gradually increasing their oversight of Ant, which has largely thrived as a technology platform free from costly banking regulations despite its variety of financial offerings.
The scrutiny has particularly intensified for the company’s fast-growing online consumer loan business, a revenue stream, which gets demand from retail consumers and small businesses and passes it on to about 100 banks for underwriting.
Regulators move
The Shanghai speech was the trigger for a major escalation, according to half of the dozen people interviewed, prompting senior political officials to ask regulators, including the central bank and China’s top banking regulator, for a comprehensive review. of Ant.
The watchdogs, who for years had wanted to control Ma’s fintech empire, moved quickly after receiving written instructions from officials, including Vice Premier Liu He, a trusted economic adviser to President Xi, two of the people said. .
The Information Office of the Council of State did not immediately respond to a Reuters Liu’s request for comments.
As part of this campaign, regulatory officials rushed to release a consultation document Monday to tighten the rules for the country’s microcredit business, directly impacting Ant, a person with direct knowledge said.
The draft requires micro-lenders to finance at least 30% of any loans they jointly finance with banks. Only 2% of the loans Ant had provided at the end of June were on its balance sheet, its IPO prospectus showed.
Major Chinese industry players, including Ant and Lufax Holding Ltd, an online wealth management platform, were aware of the details of the draft weeks before its public release, two of the people said.
Lufax, which raised $ 2.4 billion in a New York IPO last month, had informed investors that regulators had required major online microlenders to provide between 20% and 30% of any loans they jointly finance. with banks, according to two investors who joined. His tour.
Lufax declined to comment due to restrictions on the lull after its IPO.
By contrast, Ant executives did not mention potential regulatory changes during their two main calls with global investors during their tour last week, two other investors said.
Ant’s spokeswoman said the company was not privy to the details of the draft microcredit rules online until they were released Monday.
Hubris and humility
After the release of the consultation paper on microcredit, Ma and Ant’s two top executives were called to a rare joint meeting with four regulatory bodies.
They were told that the company, in particular its consumer loan business, would face more rigorous scrutiny on issues such as capital adequacy and leverage ratios.
Regulators were surprised by the scale and risk model of Ant’s lending division, details of which were revealed in filings related to the IPO since late August. The unit, which includes Huabei and short-term consumer loan provider Jiebei, contributed about 40% of the group’s revenue in the first half of the year.
A day later, the Shanghai Stock Exchange said it had suspended Ant’s IPO, citing a “significant change” in the regulatory environment, prompting the company to also freeze the Hong Kong portion of its double listing.
China’s securities industry regulator later said that recent regulatory changes could have a “major impact” on Ant’s business structure and earnings model. It said suspending the IPO was a responsible move for investors and investors alike. the markets.
The suspension marked the lowest point in what has been a relationship that has gradually soured in recent years between Ma’s corporate empire and Chinese regulators, from the central bank to the Internet and market watchdogs.
However, after the announcement, Ant issued a statement committing to “adopt” the regulation.
“He has no choice but to do so,” Gavekal Research analyst Andrew Batson wrote in a report this week. “Ma’s arrogance has now turned into humility.”
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