Photographer: Qilai Shen / Bloomberg
Photographer: Qilai Shen / Bloomberg
Jack Ma’s under-siege Ant Group Co. plans to turn its financial operations into a holding company that can be regulated more like a bank, according to people familiar with the situation, potentially paralyzing the growth of its most profitable units.
The fintech giant plans to move any unit that needs a financial license into the holding company, pending regulatory approval, said the people, who asked not to be named because the case is private. The people say the plans are still under discussion and subject to change. Ant declined to comment.
The operations that Ant wants to include in the holding company include wealth management services, consumer loans, insurance, payments and MYbank, an online lender in which Ant is the largest shareholder, people said. According to the structure of financial holding companies, Ant’s businesses are likely to be subject to more capital constraints, which may limit its ability to borrow more and expand at the pace of the past few years.
The proposals suggest that Ant will still be able to operate in financial services outside its payment business, which could interpret investors’ concerns about the Sunday Bank’s Sunday message when it asks Ant to return as a payment provider.
“This means that China is still trying to encourage domestic consumption, and that it needs platforms like Ant to help with consumer lending,” said Wang Zhen, an analyst at UOB-Kay Hian Holdings in Shanghai. ‘The key is that consumer loans are not overused. ”
SoftBank Group Corp traded up 4.5% in Tokyo on Tuesday. The Japanese company is the largest shareholder in Alibaba Group Holding Ltd., a major supporter of Ant.
Chinese regulators have also told Ant to devise a plan to sharpen its business, the latest in a series of steps to curb Ma’s online finance empire. Although it was no longer directly requested for a breakdown of the company, the central bank stressed that Ant must understand ‘the need for the refurbishment of its business’ and draw up a timetable as soon as possible.
“Its growth will be very slow,” said Francis Chan, an analyst at Bloomberg Intelligence in Hong Kong. The valuation of non-payment businesses, including wealth management and consumer loans, can be reduced by as much as 75%. said.
Ant was ready for a public listing last month that would value it more than $ 300 billion, before regulators intervened and scrapped the IPO.
According to the IPO filing, Ant owned $ 11 billion in cash and equivalents as of June. The company said in its October prospectus that it had acquired its subsidiary Zhejiang Finance Credit Network Technology Co. apply for the financial possession license.
Under rules that went into effect in November, non-financial corporations that control at least two financial sector institutions must have a financial ownership license. Rules on how financial control companies can be regulated are still being considered.
| Most important changes under draft rules | Impact on businesses |
|---|---|
| Online lending companies like Ant will be expected to provide 30% of loan financing | More capital needed; Ant holds about 2% of the loans in his books |
| Enterprises that must be banned outside provincial bases without special approval from the bank watchdog. Permission, if granted, to renew every three years | Requires some businesses to re-apply for licenses; more frequent examination |
| Those who borrow in several provinces for a 5 billion yuan in minimum registered capital | More capital, greater research into operations |
| A shareholder cannot control more than one microlender operating nationwide | Restrict expansion vehicles |
Chan estimates that Ant should inject at least 70 billion yuan ($ 11 billion) of new capital just for his lending business. The calculation is based on draft rules that require Ant to co-finance 30% of the loans, with a maximum leverage of five times.
Lifestyle units
Ant plans to leave its digital lifestyle business – the services that connect users to food delivery, on-demand services and hotel reservations – out of the financial management company, one of the people said. Ant will still be the parent of all the surgeries, the person added.
Ant is not currently working on a proposal to break up the business, but is seeking more guidance from regulators on what structure would be acceptable and could change its plans based on the feedback, the person said.
| Recent rule changes |
|---|
| Businesses that span two financial sectors and are classified as an asset threshold ‘financial holding companies with greater scrutiny of capital, financing, ownership, etc. |
| The use of asset-backed securities to finance consumer loans is limited to four times net asset value; loans financed by banks and shareholders may not exceed the net asset value of enterprises |
| Regulators said limit interest rates on consumer loans |
According to Chan, Ant’s valuation could drop to below $ 153 billion, similar to where it stood two years ago after a fundraising round.
– With the help of Lulu Yilun Chen, Zheng Li and Jun Luo
(Updates with SoftBank’s share price, analyst vote)