China has ordered Ant to re-examine its fintech business – from wealth management to consumer lending and insurance – and return to its roots as a payment service.
While Sunday’s central bank statement was lacking in detail, it poses a serious threat to the growth and most profitable operations of billionaires. Jack MaThe online financial empire. Regulators stopped asking directly for the company’s separation, but stressed that it is important for Ant to “understand the need to review its business” and told him to come up with a plan and timeline as soon as possible.
Authorities also criticized Ant for sub-parity corporate governance, contempt for regulatory requirements and engaging in regulatory arbitrage. The central bank said Ant used its dominance to exclude rivals, affecting the interests of its hundreds of millions of consumers.
Ant said in response that he would set up a task force to comply with regulatory requirements. It will maintain business operations for users, promising not to raise prices for consumers and financial partners, while intensifying risk control.
The Hangzhou-based company needs to set up a separate financial company that complies with the rules and makes sure it has enough capital, regulators added.
Here are some scenarios for investors and analysts on what the restructuring might look like:
Gentle
Optimists say regulators are reaffirming their right to oversee the country’s financial sector by sending a warning to internet companies with no intention of drastic change.
Beijing could try to make an example of Ma’s Ant, the largest of a number of new but ubiquitous fintech platforms. Previous crackdowns of this nature have affected companies in the short term, leaving them largely unharmed. The social media giant Tencent Holdings Ltd., for example, became a prominent target of a campaign to combat gambling addiction among children in 2018. While its actions were successful, they eventually recovered to historic highs.
Affiliate of ants, Alibaba Group Holding Ltd. has similarly regained investor confidence after short-term sales, following accusations from the authorities about everything from unfair squeezing of traders to turning a blind eye to counterfeiting on its e-commerce platform.
“I don’t think regulators are thinking of separating Ant, because no Chinese fintech company has a monopoly status,” said Zhang Kai, an analyst at market research firm Analysys Ltd. “The act is not just about Ant, it’s about and sending a warning to other Chinese fintech technology companies. ”
Some see it as an opportunity for Ant. As the industry as a whole faces tougher oversight, Ant has more resources to meet the challenges as an industry leader, Zhang said.
Bad
A more worrying result would be if regulators move to break the Ant group. This would complicate the shareholder structure and affect the fastest growing companies in the company.
Valued at about $ 315 billion before the initial public offering was halted, Ant recalled investments in the world’s largest funds. Among them: Warburg Pincus LLC, Carlyle Group Inc., Silver Lake Management LLC, Temasek Holdings Pte and GIC Pte.
Global investors backed the company when it was valued at about $ 150 billion in its last round of fundraising in 2018. A split would make the return on their investments uncertain, the timing for an IPO to be in November has now been pushed into the distant future.
The government could ask Ant to give up its more profitable operations in wealth management, credit loans and insurance, unloading them in a financial holding company that will be subject to tougher control.
“The emerging reality is that Chinese regulators are adopting similar regulations to banks and fintech players,” said Michael Norris, a Shanghai-based research and strategy manager at the Shanghai-based consulting agency.
Only the ant payment business leaves much less to the imagination. While the service handled $ 17 trillion transactions in one year, online payments were largely at a loss. The two largest mobile payment operators, Ant and Tencent, heavily subsidized the companies, using them as a gateway to conquer users. To make money, they used payment services to sell cross-border products, including wealth management and credit loans.
“The growth potential of ants will be limited, focusing back on its payment services,” said Chen Shujin, chief financial officer in China at Jefferies Financial Group Inc. from Hong Kong. “On the continent, the online payments industry is saturated and Ant’s market share has almost reached its limit. ”
Nightmare
The worst-case scenario would be for Ant to give up its money management, credit and insurance business, shutting down operations in units that serve half a billion people.
Its wealth management business, which includes the Yu’ebao platform, which sells mutual funds and money market funds, accounted for 15% of revenue.
Lending technology, which includes Ant’s Huabei and Jiebei units, was the largest revenue factor for the group, contributing 39% of the total in the first six months of this year. It has provided loans to about 500 million people.
This result would be supported by the idea that Chinese leaders have been frustrated by the bragging of technology billionaires and want to teach them a lesson by killing their business – even if it means short-term pain for the economy and markets.
China’s private sector has maintained a delicate relationship with the Communist Party for decades and has only recently been recognized as central to the nation’s future. Many commentators attributed the recent crackdown on fintech companies to remarks made by Ma at a conference in October, when he considered myopic and outdated attempts to narrow the growing field.
Between them, Alibaba, Ant and Tencent ordered a combined market capitalization of nearly $ 2 trillion in November, surpassing state giants such as Bank of China Ltd. as the country’s most valuable companies.
The trio has invested billions of dollars in hundreds of emerging mobile and internet companies, earning the status of kingmaker on the world’s largest smartphone and internet market.
“The Communist Party is the end and the being in China. He controls everything, “he said Alex Capri, a Singapore-based researcher at the Hinrich Foundation. “There is nothing that the Chinese Communist Party does not control and anything that seems to rotate in any way out of its orbit will be withdrawn very quickly,” he said, adding, “We can expect to see more of that.”