(Bloomberg) – Pony Ma’s Tencent Holdings Ltd. has been notified.
Asia’s largest conglomerate was censored by China’s antitrust body on Friday, while Beijing amplifies a crackdown that began with Jack Ma’s online empire.
The token fine is just the beginning. China’s top financial regulators see Tencent as the next target for increased oversight after the crackdown on Jack Ma’s Ant Group Co., according to people with knowledge of his thinking. Like Ant, Tencent is likely to be forced to establish a financial holding company to include its banking, insurance and payments services, one of the people said, seeking anonymity because the discussions are private.
The two companies will set a precedent for other fintech players to comply with stricter regulations, people added.
Such a move would mark a significant escalation in China’s campaign to curb the influence of its tech magnates, days after Prime Minister Li Keqiang pledged at the National People’s Congress to expand supervision of financial technology, eliminate monopolies and prevent expansion ” unregulated capital “.
“We will continue to adapt to changes in the regulatory environment, which we consider beneficial to the industry, and we will seek to ensure full compliance,” said Tencent in a statement sent via email following the antitrust fine. The company declined to comment on financial regulatory issues.
The China Banking and Insurance Regulatory Commission did not immediately respond to a request for comment.
A series of rules unveiled in the past six months has reached the domains built by China’s most successful online entrepreneurs. The first scams fell on Jack Ma when Ant’s $ 35 billion initial public offering was torpedoed at the last minute, followed by an antitrust investigation at Alibaba Group Holding Ltd.
Although Pony Ma does not have the kind of global prominence that Jack Ma has, he is considered one of China’s most talented entrepreneurs within the country. At 49, Tencent has become the most valuable company in Asia based on the strength of its social media and gaming businesses. Ma is the richest person in China.
Tencent has already seen the collateral damage from the new regulations, although investors have ignored this, stepping up shares even when Alibaba was punished. Its 26% advance in six months contrasts with a 15% drop for e-commerce giant Jack Ma, which owns a third of Ant. Tencent’s shares reached a record high on January 25, valuing it at around $ 950 billion.
The shares fell 4.4% in Hong Kong on Friday. The shares of Naspers, a Tencent investor, and its Prosus unit, also fell. Spreads on Tencent’s 2.39% dollar bonds due in 2030 increased 9 basis points, while notes issued by other Chinese technology giants, including Meituan and JD.com Inc., also weakened, according to traders.
Together with Ant, the proposed rules to break the market concentration in digital payments and control online consumer loans will hurt the outlook for Tencent’s WeChat Pay and its broader fintech business.
A dictate to turn these operations into a holding company that could be regulated more like a bank could further restrict its ability to lend more and expand as quickly as it has done in recent years.
Tencent’s fintech business had revenues of around 84 billion yuan ($ 13 billion) in 2019, accounting for 22% of the total and becoming the biggest profit driver after online entertainment. That’s about 70% of Ant’s revenue for the year.
Evaluation Result
Following the suspension of Ant’s IPO, the central bank ordered the Hangzhou-based company to become a financial holding company, subjecting it to capital restrictions, the need for new licenses and ownership scrutiny. The reform may reduce the valuation of the financial juggernaut by about 60%, compared to the estimated $ 280 billion last year, estimated Bloomberg Intelligence analyst Francis Chan.
Tencent meets the parameters for such treatment, including the limit on assets and having businesses that cover at least two financial sectors.
What Bloomberg Intelligence says
Fintech is neither Tencent’s fastest growing company nor the most profitable, minimizing the immediate financial impact, but the turn of events may signal an era of more stringent regulatory oversight, with strong echoes of Alibaba’s changing fortunes.
– Vey-Sern Ling and Tiffany Tam, analysts
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Outside of financial services, Tencent and its peers are exposed to new actions on the antitrust front.
On Friday, the regulator fined Tencent, search leader Baidu Inc., giant Didi Chuxing and a handful of another 500,000 yuan each – the maximum under current rules – for previous acquisitions and investments, intensifying its crackdown.
Alibaba is also being investigated and the watchdog is considering a record fine exceeding the $ 975 million that Qualcomm Inc. paid in 2015, Dow Jones said.
Prime Minister Li balanced his restrictions last week with a guarantee that Beijing supports “innovation and development of platform companies”, as long as they are in accordance with the country’s laws.
Recent measures to control fintech firms were not aimed at a specific company, said a senior regulator, but instead focused on creating a stable environment for the growth of the private company.
Still, Beijing has a tendency to set examples of its biggest companies to force others to align themselves with changing priorities. All three of the country’s financial watchdogs set as their primary objective this year to contain the “reckless” momentum of technology companies in finance. And there is little doubt about the influence that the Pony Ma conglomerate has built on finance.
Its WeChat super-app has over a billion consumers who use it for everything from chatting with friends to booking taxis and buying groceries. WeChat Pay accounts for almost 40% of the country’s mobile payments market, second only to Alipay, according to iResearch.
Tencent with three other major technology companies – Alibaba, JD.com and Baidu – together control more than 40 financial licenses through acquisitions or investments, according to the Xinhua News Agency, which cited 01caijing.
(Updates with Pony Ma’s history in the ninth paragraph.)
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