Ant Group Co. has agreed to a restructuring plan with Chinese regulators, through which the fintech giant will be housed within a financial holding company, bringing the groups’ regulatory status on par with banks, Bloomberg reported. The Jack Ma-backed entity will house its financial services business as well as its blockchain and food delivery division housed within the holding company, the report said.
Over the last few months, Ma has been on the receiving end of the Chinese political system and regulators’ wrath. In early November 2020, the initial public offering of one of his companies, the Ant Group, was suspended by the Shanghai Stock Exchange. This was followed by China’s central bank and antitrust watchdog turning the screws on the Alibaba Group and Ant Group as well as Ma himself.
According to the report, the Chinese regulators are looking at overhauling its regulations for companies, like Ant Group, that have multiple digital financial services offerings within the same business structure. These rules would include higher capital requirements for Ant and others. In fact, according to another Bloomberg report, Ant and its banking partners are scaling back their digital lending operations as regulators now want the fintech firm to put up at least 30% of the funding for loans that are jointly offered with banks, instead of 2% as was the practice until recently.
If Ant plans to forge ahead with an IPO plan later this year, it would need to restructure the organisation, raise capital to meet the new requirements and then get reevaluated before regulators sign-off on a listing sometime this year or the next. According to Bloomberg, the Ant Group Co. had a pre-IPO valuation of $280 billion which has now dropped to $108 billion.
Scrutiny and pressure from regulators
The first run-ins began when the People’s Bank of China (PBC) tightened rules on online lenders introducing new measures on capital, licensing requirements, caps on loan rates and limits on the use of asset-backed securities to fund quick consumer loans. Ma’s personal wealth was pegged at $60 billion at the time.
Then during a speech at the Bund Summit, in Shanghai in October, Ma likened China’s traditional banks to “pawnshops“, which allowed many to grow so big that they are not allowed to fail. “We shouldn’t use the way to manage a train station to regulate an airport, neither should we regulate the future with the method from yesterday,” he said. This earned the ire of regulators.
After the IPO was suspended, in early December the Chinese antitrust watchdog fined Alibaba 500,000 yuan ($76,500) over a few acquisitions it had made. In the following weeks, the State Administration for Market Regulation said that it would investigate Alibaba over anti-competition practices.
During the last week of December, executives of Ant Group were summoned by the PBC. The central bank laid out a five-point compliance program which stated that the fintech should go back to its payments roots, bring transparency to transactions, obtain licenses for lending business, protect data privacy, and improve compliance of its securities business. It further said that the group has to create a financial holding company, ensure it has enough capital, and align its lending, insurance, wealth and other financial businesses with the law.
Alibaba and Ant Group’s Indian interests
- One97 Communications (Paytm): 30.3% stake owned by Ant Group worth $4.8 billion
- Zomato: 23% stake
- BigBasket: 26.2% stake
- Xpressbee: $10 million investment
- VMate: $100 million investment
- Vidooly: ₹14.37 crore investment
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