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Formiga turning from unexpected luck into a nightmare for its global investors
(Bloomberg) – Two months ago, global investors, including Warburg Pincus, Carlyle, Temasek and GIC were on the verge of a windfall of what would have been the largest initial public offering in the world. Now, returns of hundreds of millions of dollars they have invested with Ant Group Co. are in jeopardy. On Sunday, China ordered Ant to reexamine its fintech business – ranging from wealth management to loans and consumer credit insurance – and return to its roots as a payment service. Although the central bank statement lacked details, it poses a serious threat to the growth and more profitable operations of billionaire Jack Ma’s online finance empire. Regulators stopped asking directly for the company’s spin-off, but emphasized that it was important that Ant “Understand the need to reshape your business” and were told to come up with a plan and schedule as soon as possible. – even corporate governance, disdain for regulatory requirements and involvement in regulatory arbitration. The central bank said Ant used its domain to exclude rivals, harming the interests of its hundreds of millions of consumers. Ant said in response that it will assemble a special team to meet the demands of regulators. It will maintain commercial operations for users, promising not to raise prices for consumers and financial partners, while intensifying risk controls. The Hangzhou-based company needs to create a separate financial holding company to comply with the rules and ensure it has sufficient capital, regulators added. Here are some of the scenarios from investors and analysts as to what the restructuring might look like: Moderate-optimists say that regulators are merely reaffirming their right to oversee the country’s financial sector by sending a warning to internet companies with no intention of drastic changes. Beijing may be trying to make an example of Ma’s Ant, the largest among a series of new fintech platforms. Previous crackdowns of this nature have affected companies in the short term, leaving them virtually unharmed. Social media giant Tencent Holdings Ltd., for example, became a prominent target of a campaign to combat gaming addiction among children in 2018. Although their actions have suffered, they have finally recovered to historic levels. ., likewise regained investor confidence after short-term sales following accusations by authorities on everything from unfairly pressuring merchants to turning a blind eye to counterfeiting on its e-commerce platform. “I don’t think regulators are thinking of ending Ant, as no fintech company in China has a monopoly status,” said Zhang Kai, an analyst at market research firm Analysys Ltd. “The law is not just about Ant , but also sends a warning to other Chinese fintech companies. “as an opportunity for Ant. With the industry as a whole facing tougher supervision, Ant has more resources to address challenges as an industry leader, said Zhang.Bad. A more worrying result would be if regulators decide to separate Ant Group. This would complicate the shareholder structure and undermine the company’s fastest-growing businesses. Valued at around $ 315 billion before its initial public offering was interrupted, Ant has cornered investments from the world’s largest funds. Among them: Warburg Pincus LLC, Carlyle Group Inc., Silver Lake Management LLC, Temasek Holdings Pte and GIC Pte. Global investors supported the company when it was valued at about $ 150 billion in its last round of fundraising in 2018. It would make the return on its investments uncertain, with the timetable for an IPO that would expire in November now pushed to an distant future. The government could ask Ant to break up its most profitable operations in wealth management, credit loans and insurance, by downloading “The emerging reality is that China’s regulators are adopting similar regulations for banks and fintech companies,” said Michael Norris, research and strategy manager at Shanghai’s AgencyChina.Ant consultancy. let alone the imagination. Although the service managed $ 17 trillion in transactions in one year, online payments were largely in deficit. The two largest mobile payment operators, Ant and Tencent, have heavily subsidized businesses, using them as a gateway to win over users. To make money, they leveraged payment services for cross-selling products, including wealth management and credit loans. “Ant’s growth potential will be limited by focusing back on its payment services,” said Chen Shujin, head of finance for China in Hong Kong research by Jefferies Financial Group Inc. “On the continent, the online payments industry is sat and Ant’s market share has practically reached its limit. ” Nightmare The worst scenario would be for Ant to give up its money management, credit and insurance businesses, interrupting its operations in units that serve half a billion people. Its wealth management business, which includes the Yu’ebao platform, which sells mutual funds and money market funds, accounted for 15% of revenue. Credit technology, which includes Ant’s Huabei and Jiebei units, was the group’s biggest revenue driver, contributing 39% of the total in the first six months of this year. It made loans to some 500 million people. This result would be supported by the idea that China’s leaders have been frustrated by the arrogance of technology billionaires and want to teach them a lesson by killing their businesses – even if it means pain in the short term for the economy and markets. China’s private sector has maintained a delicate relationship with the Communist Party for decades and has only recently been recognized as central to the nation’s future. Many commentators attributed the recent crackdown on fintech companies to the comments Ma made at a conference in October, when he denounced attempts to control the burgeoning field as short-sighted and outdated. Among them, Alibaba, Ant and Tencent led a combined market capitalization of almost $ 2 trillion in November, overtaking state giants like Bank of China Ltd. as the country’s most valuable companies. The trio invested billions of dollars in hundreds of emerging mobile and internet companies, earning kingship status in the world’s largest smartphone and internet market by users. “The Communist Party is the end of everything and the best in China. He controls everything, ”said Alex Capri, a researcher at the Hinrich Foundation in Singapore. “There is nothing that the Chinese Communist Party does not control and anything that appears to be spinning out of its orbit will somehow be pulled back very quickly,” he said, adding, “we can expect to see more of that. ”For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted source of business news. © 2020 Bloomberg LP