Jack Ma’s besieged Ant Group Co. is planning to fold 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 unit that would require a financial license into the holding company, pending regulatory approval, said the people, who asked not to be named because the matter is private. The plans are still under discussion and subject to change, the people said. Ant declined to comment.
The operations that Ant is looking to fold into the holding company include wealth management services, consumer lending, 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 restrictions, potentially curbing its ability to lend more and expand at the pace of the last few years.
That said, the proposals suggest Ant would still be able to operate in financial services beyond its payments business, quelling investor concern about how to interpret the central bank’s Sunday message when it asked Ant to return to its roots as a payments provider.
“This means China is still trying to encourage domestic consumption, and they need platforms like Ant to help with consumer loans,” said Wang Zhen, a Shanghai-based analyst with UOB-Kay Hian Holdings Ltd. “The key is that consumer lending shouldn’t be over-leveraged.”
SoftBank Group Corp. rose 4.5%, the most in more than two weeks. Alibaba Group Holding Ltd. rose 5.7% in Hong Kong, the most since Nov. 5. The Japanese company is the largest shareholder in Alibaba, a major backer of Ant.
Chinese regulators also told Ant to devise a plan to overhaul its business, the latest in a series of steps to rein in Ma’s online finance empire. While it stopped short of directly asking for a breakup of the company, the central bank stressed Ant needed to “understand the necessity of overhauling its business” and come up with a timetable as soon as possible.
“Its growth would slow a lot,” said Francis Chan, a Bloomberg Intelligence analyst in Hong Kong. The valuation of the non-payment businesses, including wealth management and consumer lending, could be slashed by as much as 75%, he said.
Ant was last month poised for a public listing that would have valued it at more than $300 billion, before regulators intervened and scuttled the IPO.
Ant held $11 billion in cash and equivalents as of June, according to its 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 holding license.
Under rules that took effect in November, non-financial companies which control at least two cross-sector financial institutions are required to hold a financial holding license. Rules on how financial holding companies could be regulated are still under deliberation.
|Key Changes Under Draft Rules||Impact on Firms|
|Online lending companies like Ant would be required to provide 30% of funding for loans||More capital needed; Ant holds about 2% of loans on its books|
|Firms to be banned from operating outside provincial bases without special approval from the banking watchdog. Permission, if granted, to be renewed every three years||Require some firms to reapply for licenses; more frequent scrutiny|
|Those lending in multiple provinces to have a 5 billion yuan of minimum registered capital||More capital, greater scrutiny on operations|
|A shareholder cannot control more than one micro-lender operating nationally||Limits expansion vehicles|
Chan estimates that Ant needs to inject at least 70 billion yuan ($11 billion) of new capital just for its credit-lending business. That calculation is based on draft rules that require Ant to co-fund 30% of loans, with a maximum asset leverage of five times.
Ant is planning to leave its digital lifestyle business — the services that link users with food deliveries, on-demand neighborhood services and hotel bookings — out of the financial holding company, one of the people said. Ant will still be the parent of all those operations, the person added.
Ant isn’t working on a proposal to break up the company at this time, though is seeking more guidance from regulators on what structure will be acceptable and may change its plans based on that feedback, that person said.
|Recent Rule Changes|
|Businesses straddling two financial sectors, meeting asset threshold classified ‘financial holding companies’ with greater scrutiny on capital, funding, ownership, etc.|
|Use of asset-backed securities to fund consumer loans capped atfour times net asset value; loans using funding from banks and shareholders shouldn’t exceed firms’ net asset value|
|Regulators said tocap interest rates charged on consumer loans|
Ant’s valuation could fall to below $153 billion, according to Chan, similar to where it stood two years ago after a fundraising round.- Bloomberg