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Ant Group To Become Holding Company Amid Beijing's Ongoing Jack Ma Crackdown

Tyler Durden's Photo
by Tyler Durden
Monday, Apr 12, 2021 - 08:21 AM

Just days after Jack Ma's Alibaba was fined a record $2.8 billion as part of Beijing's anti-trust crackdown of Jack Ma's sprawling financial empire, on Monday Ant Group, the financial-technology giant controlled by billionaire Jack Ma whose IPO was ceremoniously yanked by Beijing last November, would apply to become a financial holding company overseen by China’s central bank, overhauling its business to adapt to a new era of tighter regulation for internet companies. The move would result in Ant Group being regulated more like a bank, directing an overhaul that was set in motion when the fintech giant’s record initial public offering was abruptly halted last year.

In a statement, the People’s Bank of China said Ant representatives were summoned to a meeting Monday with four regulatory agencies that also included the country’s banking, securities and foreign-exchange overseers, the WSJ reported. It said a "comprehensive, viable rectification plan” for Ant has been formulated under the regulators’ supervision over the past few months.

The central bank ordered Ant to rectify its business in five areas, including eliminating unfair competition in its payments business, managing liquidity risks in its major fund products, ending a monopoly on information and improving corporate governance, according to a government statement. It also told the firm to cut the outstanding value of its money-market fund Yu’ebao.

As Bloomberg adds, the "overhaul creates a definitive supervision framework for the biggest player in the country’s sprawling fintech sector." The recast is a step toward meeting the demands of China’s watchdogs, who have pledged this year to curb the “reckless” push of technology firms into finance and are examining monopolies online.

The directive follows an intense regulatory assault on Jack Ma’s business empire that began with the suspension of the company’s blockbuster initial public offering in November. Ant had been on track to sell more than $34 billion worth of stock and list on stock exchanges in Hong Kong and Shanghai, when Beijing pulled the plug on the deal after Ma criticized financial regulators in a public speech.

Ma's ambitions were quickly curtailed, and in January, the WSJ reported that Ant was planning to fall fully in line with China’s financial regulations by turning itself into a financial holding company, a relatively new designation for businesses that have substantial financial assets. But whereas in the US such a desgination makes one eligible for a bailout, in China it just means that your assets have now been de facto nationalized by Beijing.

Ant, which owns the ubiquitous mobile payment and lifestyle app Alipay - at least until Beijing rolls out the Digital Yuan which will replace all such apps - will have to correct what regulators called unfair competition in its payments business and improve its corporate governance. The Hangzhou-based company will have to reduce the liquidity risks of its investment products and shrink the assets under management of Yu’e Bao, its giant money-market mutual fund.

Most importantly, Ant will be required to break an “information monopoly” on the vast and detailed consumer data it has collected, the central bank said. China has been pursuing the "holy grail" of credit and financial details of China's unbanked population, and to do so, it had to do stage a soft takeover of Ant. The events over the past 6 months have allowed it do just that.

Ant’s Alipay has more than a billion users in China. It handled the equivalent of more than $17 trillion of digital-payment transactions in the year to June 2020, originated unsecured short-term loans to roughly 500 million people and sells many insurance policies, mutual funds and other investment products.

In a statement, Ant said it “will spare no effort in implementing the rectification plan, ensuring that the operation and growth of our financial-related businesses are fully compliant.”

In addition to applying to become a financial holding company, the company said it would set up a licensed personal credit reporting company. It plans to fold Jiebei and Huabei, its two popular online personal lending services, into a regulated consumer finance company. Ant said its payment business will remain committed to serving consumers and small businesses.

“We will put our growth proactively within the national strategic context,” Ant said, adding it will “strive to create societal value.”

The Economic Daily, a state-run newspaper, said in a Monday commentary that Ant’s restructuring plan reflects the central government’s recent calls that platform economies should return to their roots and focus on serving the real economy and people.

“The underlying color of financial technology is still finance,” the newspaper said. Formulating a rectification plan is only the first step and going forward Ant should benchmark itself against the plan to fully meet the regulators’ demands, the newspaper said.

As reported previously, the regulators’ disclosure of Ant’s plan comes shortly after Ant’s sister company, Alibaba Group, was fined the equivalent of $2.8 billion by China’s antitrust regulator, which accused the e-commerce giant of abusing its dominant market position to the detriment of rivals, merchants and consumers. In addition to the record penalty, Alibaba agreed to undertake a comprehensive revamp of its operations and ensure its compliance with fair competition rules. While Alibaba shares rallied in Hong Kong on Monday as the record penalty on the group was seen lifting a regulatory overhang on its stock, shares of peers including Tencent and Meituan slid, weighing on the Hange Seng.

Ma, who is Ant’s controlling shareholder, co-founded Alibaba and still owns some stock in the company. Alibaba owns a third of Ant. Both companies—which have grown rapidly and are highly profitable—are trying hard to appease regulators and move forward for their employees and shareholders.

Last fall, Ant was on track to go public with a valuation of more than $300 billion, well above the market capitalizations of the world’s biggest banks. Less than three years earlier, in June 2018, investors had valued Ant at $150 billion following a large private capital raising.

More recent estimates of Ant’s valuation have varied widely. Many analysts and investors expect Ant’s profit potential to be reduced as it scales back some businesses including online consumer lending, which was previously its main growth driver. At the end of January, some American investment funds managed by Fidelity Investments had marked the value of their Ant shares at prices that implied a company valuation of about $230 billion, according to regulatory filings.

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