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 hampering the growth of its most profitable units.
The fintech giant plans to transfer any unit that requires a financial license to the holding company, pending regulatory approval, said the people, who requested anonymity because the matter is private. The plans are still under discussion and subject to change, people said. Ant declined to comment.
The operations that Ant plans to incorporate into the holding include wealth management services, consumer loans, insurance, payments and MYbank, an online lender of which Ant is the largest shareholder, people said. Under the structure of the financial holding company, Ant’s businesses are likely to be subject to more capital restrictions, potentially limiting its ability to lend more and expand at the pace of recent years.
That said, the proposals suggest that Ant would still be able to operate in financial services in addition to its payments business, suppressing investors’ concerns about how to interpret Sunday’s message from the central bank when it asked Ant to return to its roots as a provider payments.
“This means that China is still trying to encourage domestic consumption and needs platforms like Ant to help with consumer loans,” said Wang Zhen, an analyst at UOB-Kay Hian Holdings Ltd. in Shanghai. “The key is that consumer loans should not be over-leveraged. “
SoftBank Group Corp. rose 4.5% in Tokyo talks on Tuesday. The Japanese company is the largest shareholder in Alibaba Group Holding Ltd., a major sponsor of Ant.
Chinese regulators also told Ant to come up with a plan to review his business, the latest in a series of measures to control Ma’s online financial empire. Although it did not actually call for the company’s dissolution directly, the central bank emphasized that Ant needed to “understand the need to reshape its business” and set 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 companies that do not pay, including wealth management and consumer loans, can be reduced by up to 75%, he said.
Ant was ready last month for a public listing that would have valued it at more than $ 300 billion, before regulators stepped in and denied the IPO.
Ant held $ 11 billion in cash and cash equivalents in June, according to its IPO request. The company said in its prospectus in October that it would use its subsidiary Zhejiang Finance Credit Network Technology Co. to apply for a financial participation license.
According to the rules that came into force in November, non-financial companies that control at least two intersectoral financial institutions are required to hold a financial participation license. Rules on how financial holding companies can be regulated are still under discussion.
| Major changes to draft rules | Impact on companies |
|---|---|
| Online lending companies like Ant would be required to provide 30% of loan financing | More capital needed; Ant holds about 2% of loans on his books |
| Companies will be prohibited from operating outside the provincial bases without special approval from the bank supervisory body. Permission, if granted, to be renewed every three years | Require that some companies apply for licenses again; more frequent scrutiny |
| Those who lend in several provinces must have a 5 billion yuan of minimum registered capital | More capital, greater scrutiny in operations |
| A shareholder cannot control more than one micro-creditor operating nationally | Limits expansion vehicles |
Chan estimates that Ant needs to inject at least 70 billion yuan ($ 11 billion) in new capital just for its credit business. This 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 is planning to leave its digital lifestyle business – the services that connect users with food delivery, neighborhood services on demand and hotel reservations – from the financial holding company, one person said. Ant will still be the father of all these operations, the person added.
Ant is not working on a proposal to separate the company at the moment, although it is seeking further guidance from regulators as to which structure will be acceptable and may change its plans based on that feedback, the person said.
| Recent rule changes |
|---|
| Companies spanning two financial sectors, reaching the limit of classified assets’financial companies with greater scrutiny on capital, financing, ownership, etc. |
| Use of asset-backed securities to finance consumer loans limited tofour times the net asset value; loans financed by banks and shareholders must not exceed the net asset value of the companies |
| Regulators said tolimit interest rates charged on consumer loans |
Ant’s valuation could drop to less than $ 153 billion, according to Chan, similar to where he was two years ago after a fundraising round.
– With the help of Lulu Yilun Chen, Zheng Li and Jun Luo
(Updates with the share price of SoftBank, voice of the analyst)