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Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
The Siege of Jack Ma Ant Group Co. is planning to turn its financial operations into a holding company that could be regulated more like a bank, according to people familiar with the situation, potentially crippling the growth of its most profitable units.
The fintech giant is planning to move any units that require a financial license to the holding company, pending regulatory approval, said the people, who asked not to be identified because the matter is private. The plans are still under discussion and subject to change, the people said. Ant declined to comment.
The operations Ant is looking to bring into the holding include wealth 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 constraints, which could slow down its ability to lend more and expand at the rate of recent years.
That said, the proposals suggest that Ant could still operate in financial services beyond its payments business, quelling investors’ concern about how to interpret the central bank’s Sunday message when it asked Ant to return to its roots as a provider of Payments.
“This means that China is still trying to encourage domestic consumption, and it needs platforms like Ant to help with consumer loans,” said Wang Zhen, a Shanghai-based analyst at UOB-Kay Hian Holdings Ltd. “The key is that consumer loans should not be over-leveraged. “
SoftBank Group Corp. rose as much as 4.5% in Tokyo trading on Tuesday. The Japanese company is the largest shareholder of Alibaba Group Holding Ltd., one of the main sponsors of Ant.
Chinese regulators also told Ant to devise a plan to reform his business, the latest in a series of steps to curb Ma’s online financial empire. While he fell short of directly calling for the company’s disintegration, the central bank He stressed that Ant needed to “understand the need to reform his business” and come up with a timetable as soon as possible.
“Its growth would slow down a lot,” said Francis Chan, an analyst at Bloomberg Intelligence in Hong Kong. The valuation of defaulting businesses, including wealth management and consumer loans, could be lowered by as much as 75%, he said. said.
Ant was primed last month for a public listing that would have valued it at more than $ 300 billion before regulators stepped in and scuttled the IPO.
Ant had $ 11 billion in cash and equivalents as of June, according to his IPO filing. The company said in its prospectus in October that it would use its subsidiary Zhejiang Finance Credit Network Technology Co. to apply for the financial exploitation license.
Under the rules that went into effect in November, non-financial companies that control at least two cross-industry financial institutions must have a financial holding license. The rules on how financial holding companies might be regulated are still being deliberated.
| Key changes to the draft rules | Impact on companies |
|---|---|
| Online loan companies like Ant would have to provide 30% financing for loans | More capital is needed; Ant has about 2% of the loans on his books |
| Companies will be prohibited from operating outside provincial bases without special approval from the banking regulator. Permit, if granted, to be renewed every three years | Require some companies to reapply for licenses; more frequent scrutiny |
| Those who lend in various provinces to have a 5 billion yuan of minimum registered capital | More capital, more scrutiny of operations |
| A shareholder cannot control more than one micro-lender operating nationwide | Limit expansion vehicles |
Chan estimates that Ant needs to inject at least 70 billion yuan ($ 11 billion) of new capital for his credit loan business alone. That calculation is based on draft rules that require Ant to co-finance 30% of loans, with a maximum asset leverage of five times.
Lifestyle Units
Ant plans to leave its digital lifestyle business – services that link users to food deliveries, on-demand neighborhood services and hotel reservations – out of the financial holding company, one of the people said. Ant will remain the father of all those operations, the person added.
Ant is not working on a proposal to split the company at this time, although he is seeking further guidance from regulators on what structure will be acceptable and may change his plans based on that feedback, that person said.
| Recent rule changes |
|---|
| Companies spanning two financial sectors, reaching the classified asset threshold ‘financial holding companies’ with increased scrutiny over capital, financing, ownership, etc. |
| Use of asset-backed securities to finance consumer loans capped at four times the net asset value; Loans using bank and shareholder funds should not exceed the companies’ net asset value. |
| Regulators said cap on interest rates charged on consumer loans |
Ant’s valuation could drop below $ 153 billion, according to Chan, similar to where it was two years ago after a round of fundraising.
– With the help of Lulu Yilun Chen, Zheng Li and Jun Luo
(SoftBank Stock Price Updates, Analyst Voice)
