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(Nov. 3): China warned Jack Ma and top executives at Ant Group Co. that the fintech giant will face further restrictions on its expansion, highlighting growing regulatory risk to the world’s largest initial public offering. few days before its commercial debut.
Ma, the billionaire co-founder of Ant and one of China’s most powerful businessmen, was called to a rare joint meeting on Monday with the country’s central bank and three other top financial regulators. While neither party disclosed details of what was discussed, people familiar with the matter said Ant’s leadership team was told that the company will face increased scrutiny and will be subject to capital and leverage restrictions similar to banks. .
Investors have long understood that Ant would submit to new Chinese regulations on financial conglomerates, but the meeting may nonetheless temper the frenzy surrounding the biggest trading debut in history. Ant is due to go public on Thursday after raising at least $ 34.5 billion in an IPO that attracted more than $ 3 trillion of orders from retail investors in Shanghai and Hong Kong.
“Regulatory risks are the biggest risk factor for Ant Group,” said Kevin Kwek, an analyst at Sanford C. Bernstein, in a note. “We believe that the news will only be incrementally negative for the price and we believe that most investors will remain optimistic about the positive long-term outlook for Ant. However, investors could review their growth assumptions given the clear signs of intervention. regulatory “.
Ant Chairman Eric Jing and CEO Simon Hu joined Ma at the meeting, which included the banking watchdog, the China Securities Regulatory Commission and the State Administration of Foreign Exchange, according to a statement from the CSRC on Weibo. Ant said in a statement that he will “implement the views of the meeting in depth” and follow guidelines that include stable innovation, adoption of oversight and service to the real economy.
The central bank, the banking regulator and the CSRC were unable to provide additional comment outside of normal business hours.
Ant has been hit by a wave of new rules in recent months as China tightens control over online lenders and companies operating multiple lines of financial business. These have included capital and licensing requirements, a cap on loan rates, and limits on Ant’s use of asset-backed securities to finance fast consumer loans. On Monday, the banking regulator published draft rules that would force Ant and other online lending platform operators to finance more of the loans they offer together with banks.
Good innovation
The Hangzhou-based company, a 2010 offshoot of Chinese giant Alibaba Group Holding Ltd., dominates China’s payments market through the Alipay app. He also manages the giant money market fund Yu’ebao and two of the largest consumer loan platforms in the country. Other businesses include a credit rating unit and an insurance market.
Ant has faced censorship in Chinese state media after Ma last month criticized local and global regulators for stifling innovation and not paying enough attention to development and opportunities for young people. He compared the Basel Accords, which set capital requirements for banks, to a club for seniors.
“Good innovation is not afraid of regulation, but it is afraid of outdated regulation,” he told a conference in Shanghai. “We should not use the way of managing a train station to regulate an airport, nor should we regulate the future with yesterday’s method.”
Guo Wuping, head of consumer protection at the China Banking and Insurance Regulatory Commission, wrote in a comment Monday that Ant’s Huabei consumer loan facility was similar to a credit card but with higher fees. Fintech companies use their market power to set exorbitant fees in partnerships with banks, which provide most of the funds needed, he wrote.
Ant, which has more than 700 million monthly Alipay users, has made partnering with traditional banks a centerpiece of its strategy. Its lending platforms extended credit to around 500 million people in the 12 months through June, charging annualized rates on their smaller loans of around 15%.
About 2% of the 1.7 trillion yuan ($ 254 billion) of loans it made as of June were currently on its balance sheet, the company said in its prospectus.
New measures proposed by the banking regulator on Monday for online lenders included imposing a cap on the amount of loans to be offered to individual borrowers, as well as leverage.
The draft rules could deal a major blow to Ant, as they require platform operators to provide at least 30% of the funds for loans. The company declined to comment on the proposed measures.
Investor response to the new regulatory scrutiny will be clearer when Ant debuts on Thursday, but for now they seem to be taking the news in stride. Alibaba, which owns about a third of Ant, was up 2% in New York on Monday. Ant maintained initial gains on the so-called Hong Kong gray market, where the stock was said to trade at a 50% premium to the HK $ 80 listing price on Monday.
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